# 72459298 BF322 Arundel

Topics: Discounted cash flow, Net present value, Black–Scholes Pages: 7 (1426 words) Published: April 30, 2015
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Case Study – Arundel Partners: The Sequel Project

Group Members:
Chen Yanheng
Loon Shu Juan Melissa
Ong Joseline
Tan Hui Kiow

Fundamental Analysis

2. Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to buy. [There are several ways to approach this problem, all of which require some part of the dataset in Exhibits 6-9. You may find it helpful to consult the Appendix, which explains how these figures were prepared.] Using the Discounted Cash Flow method:

Discount rate = 12%
PV of Net inflows were discounted back 4 years.
PV of Negative costs were discounted back 3 years.
Movie value of the positive NPV sequels = \$490.87 million for 26 movies Per-film value = \$490.87m / 99 = \$4.96 million

Using the Black-Scholes option-pricing model with figures taken from Table B of Exhibit 9 Length of time in which cash outflow for hypothetical sequel may be deferred (t) = 3 years
Discount rate (tf,)
= (1.06^2) – 1
= 0.1236
Present value of cash inflows from hypothetical sequel (S)
= (28.2 / (1.1236^4) )
= \$17.693 miillion
Present value of cost to produce hypothetical sequel (X)
= (31.3 / (1.1236^3) )
= \$22.065 million

Standard deviation per year on present value of cash inflows = \$29.3 million
= (29.3 / 28.2) * 100%
= 103.901%
NPV
= 17.693 / 22.065
= 0.802
σ√t
= 1.03901 X √3
= 1.80

3. What are the primary advantages and disadvantages of the approach you took to valuing the rights? What further assistance or data would you require to refine your estimate of the...