AP Answer Final
EF5052 INVESTMENTS
CASE 3
Arundel Partners: The Sequel Project
GROUP 8 :
Ngai Chiu Wing Edward / 51042814
Ng Cheuk Yiu Hugo / 50649257
Lau Chau Nan, Evelyn / 9700 4330
Kuo, Constantino / 5106 4265
Pang Hhong Yu, Francesca / 50191000
Ng Ka to, Irin / 9747 5858
Suen Hung Kit, Philip / 5114 4321
Kuok, Kenneth / 5101 2428 Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to buy. You will try two different methods to solve this problem: some appropriate DCF approach, and the Black-Scholes approach. You may find it helpful to consult the Appendix, which explains how these figures were prepared. (Suppose the appropriate discount rate for risky cash flows is 12%. Risk-free rate, for discounting safer cash flows, is at 6%.)
The central stone of Arundel partners’ project is to establish a correct price for the whole rights portfolio. To do this two methods are presented: a) calculating the hypothetical sequel performances and obtaining a total value of investment using an appropriate rate for discounting to present time b) using a simple Black-Scholes options pricing model to calculate the price of the rights call.
The data which we will use to compute our calculations was provided by David Davis and the Paul Kagan Associates which are presented in exhibits 6 to 9.
Calculating the NPV of all the profitable sequels of a studio.
The data used assumes that the sequel’s estimated negative cost and US theater rentals are 120% and 70% respectively, of the corresponding items for the first film. On exhibit 7 we find the present value at year 4 and the PV of the negative cost at year 3 from the hypothetical sequels. Since the right of a film give us the opportunity to decide weather investing into the sequel is profitable, the decision is made on Year 3. If at that time the first film had no big success, the sequel would be immediately discarded, thus no investment would be made and the chances of loss would be
CASE 3
Arundel Partners: The Sequel Project
GROUP 8 :
Ngai Chiu Wing Edward / 51042814
Ng Cheuk Yiu Hugo / 50649257
Lau Chau Nan, Evelyn / 9700 4330
Kuo, Constantino / 5106 4265
Pang Hhong Yu, Francesca / 50191000
Ng Ka to, Irin / 9747 5858
Suen Hung Kit, Philip / 5114 4321
Kuok, Kenneth / 5101 2428 Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to buy. You will try two different methods to solve this problem: some appropriate DCF approach, and the Black-Scholes approach. You may find it helpful to consult the Appendix, which explains how these figures were prepared. (Suppose the appropriate discount rate for risky cash flows is 12%. Risk-free rate, for discounting safer cash flows, is at 6%.)
The central stone of Arundel partners’ project is to establish a correct price for the whole rights portfolio. To do this two methods are presented: a) calculating the hypothetical sequel performances and obtaining a total value of investment using an appropriate rate for discounting to present time b) using a simple Black-Scholes options pricing model to calculate the price of the rights call.
The data which we will use to compute our calculations was provided by David Davis and the Paul Kagan Associates which are presented in exhibits 6 to 9.
Calculating the NPV of all the profitable sequels of a studio.
The data used assumes that the sequel’s estimated negative cost and US theater rentals are 120% and 70% respectively, of the corresponding items for the first film. On exhibit 7 we find the present value at year 4 and the PV of the negative cost at year 3 from the hypothetical sequels. Since the right of a film give us the opportunity to decide weather investing into the sequel is profitable, the decision is made on Year 3. If at that time the first film had no big success, the sequel would be immediately discarded, thus no investment would be made and the chances of loss would be