Finance:real options valuations.
If you are writing the same case for different person last two weeks, then please do not take
up this assignment as it will create conflict.
Please take this assignment ONLY if you are an EXPERT in advance finance real options
valuation topics.
While answering the questions in the case material, please, make sure Quality is very important
rather than quantity. Answers must be discussed within the provided frameworks and concepts
those in the capital projects as valuation article and general finance concepts/frameworks in real
options valuations perspective.
Please use the attached excel template –Black Scholes and Merton model based (BSM)
(data is more accurate) for your calculations. Please provide me worked out excel file.
Please do not extract/copy (sorry to say this) anything from outside sources as it will create
conflict.
Arundel case is also available at below link as well:
http://xxpt.ynjgy.com/resource/data/20070809/U/138/data/jiaoan/19.pdf
Instructions
Case: Arundel case analysis.
Subject: Advance Finance and Accounting; Subtopic: Real Options Valuations.
Analysis and writing instructions:
Note: Discounted Cash Flow Analysis and Real Options Valuations are REQUIRED to be
calculated for analysis, pls see below.
In addressing the Arundel case, please analyze below. Make sure that you have read: Capital
Projects as Real Options: An Introduction (attached) and please DO NOT use the NPVq
method as suggested in that article! The attached BSM excel template provides much more
accurate results.
To further help the analysis for the case, consider the following comments/questions in
addressing the issues. Please note that these questions define the scope of the work: they are
mere guidelines, helping to focus you on issues that matter. Please note further that addressing
them is not considered as sufficient analysis. Do not limit your thinking, analysis, or findings by
these questions.
(1) a) Why do the principals of AP think they can make money buying movie sequel rights?
b) Why do they want to buy a portfolio of rights in advance rather than negotiating film-by-film
to buy them?
(2) Estimate the per-film value of a portfolio of sequel rights such as AP proposes to buy.
Several approaches may be available. You must use some portion of the data set in EXH-6-9.
You may find it helpful to consult the APPDX. This explains how these figures were obtained.
(3) a) What are the primary advantages or disadvantages of the approach you took to value the
rights?
b) What additional assistance, data, or assumptions would you require to refine your estimate
of the rights’ value?
(4) a) What problems or disagreements would you expect AP and a major studio to encounter
in the course of a relationship like that described in the case?
b) What contractual terms and provisions should AP insist on?
(5) The focus is detailed analysis. You are required to provide two methods/approaches as below
to the financial analysis of the problem:
Discounted Cash Flow Analysis. REQUIRED
Real Options Valuations. REQUIRED
method,
their advantages and disadvantages and whether the technique employed provides a reasonable
approach.
and preferably in bullet format.
Arundel Partners
Exhibit 7 (amounts in millions of nominal dollars)
Assumptions
Semiannual inflation rate 1.50%
Semiannual discount rate 6%
First Film Hypothetical Sequel
Net Inflows Negative Cost One-year Net Inflows Negative Cost One-year
Film Studio PV Yr 1 PV Yr 0 Return PV Yr 4 PV Yr 3 Return
1 Parenthood MCA Universal $100.10 $21.53 3.65 $76.80 $28.25 1.72
2 Born on the Fourth of July MCA Universal $74.50 $19.38 2.84 $56.80 $25.43 1.23
3 Field of Dreams MCA Universal $59.10 $17.23 2.43 $47.30 $22.60 1.09
4 Uncle Buck MCA Universal $60.00 $16.15 2.72 $47.00 $21.19 1.22
5 Sea of Love MCA Universal $53.50 $26.92 0.99 $44.40 $35.32 0.26
6 Always MCA Universal $34.30 $33.38 0.03 $31.40 $43.79 (0.28)
7 K-9 MCA Universal $37.80 $12.92 1.93 $29.30 $16.95 0.73
8 The Burbs MCA Universal $32.20 $18.30 0.76 $27.30 $24.02 0.14
9 The Dream Team MCA Universal $28.40 $16.15 0.76 $22.90 $21.19 0.08
10 Do the Right Thing MCA Universal $30.00 $7.54 2.98 $21.20 $9.89 1.14
11 Dad MCA Universal $17.70 $20.46 (0.13) $17.40 $26.84 (0.35)
12 Shocker MCA Universal $14.30 $6.46 1.21 $12.40 $8.48 0.46
13 The Wizard MCA Universal $12.70 $8.61 0.47 $8.70 $11.30 (0.23)
14 Renegades MCA Universal $6.90 $12.92 (0.47) $7.40 $16.95 (0.56)
15 Harlem Nights Paramount $55.40 $32.30 0.72 $51.10 $42.38 0.21
16 Pet Sematary Paramount $52.60 $11.84 3.44 $41.10 $15.54 1.64
17 Black Rain Paramount $44.10 $32.30 0.37 $39.00 $42.38 (0.08)
18 Major League Paramount $40.30 $12.92 2.12 $33.70 $16.95 0.99
19 Cousins Paramount $21.10 $14.00 0.51 $16.20 $18.37 (0.12)
20 We’re No Angels Paramount $2.10 $23.69 (0.91) $8.70 $31.08 (0.72)
21 Let it Ride Paramount $3.60 $19.38 (0.81) $4.30 $25.43 (0.83)
22 Shirley Valentine Paramount $8.90 $8.61 0.03 $4.30 $11.30 (0.62)
23 Fat Man and Little Boy Paramount $3.30 $20.46 (0.84) $3.20 $26.84 (0.88)
24 The Experts Paramount $8.20 $12.92 (0.37) $1.10 $16.95 (0.94)
25 Look Who’s Talking Sony $142.30 $10.77 12.22 $105.50 $14.13 6.47
26 When Harry Met Sally Sony $83.30 $20.46 3.07 $64.40 $26.84 1.40
27 Steel Magnolias Sony $80.40 $23.69 2.39 $61.70 $31.08 0.99
28 See No Evil; Hear No Evil Sony $40.50 $19.38 1.09 $32.00 $25.43 0.26
29 The Bear Sony $22.40 $22.61 (0.01) $21.50 $29.67 (0.28)
30 Glory Sony $29.30 $22.61 0.30 $20.80 $29.67 (0.30)
31 Look Up Sony $14.10 $18.30 (0.23) $13.20 $24.02 (0.45)
32 Casualties of War Sony $11.40 $26.92 (0.58) $12.30 $35.32 (0.65)
33 Chances Are Sony $10.80 $19.38 (0.44) $10.90 $25.43 (0.57)
34 Family Business Sony $8.30 $19.38 (0.57) $10.20 $25.43 (0.60)
35 She’s Out of Control Sony $10.50 $16.15 (0.35) $9.00 $21.19 (0.58)
36 Who’s Harry Crumb? Sony $7.60 $15.07 (0.50) $7.90 $19.78 (0.60)
37 Adventures of Baron Munchausen Sony $11.60 $55.89 (0.79) $7.00 $73.33 (0.90)
38 True Believer Sony $5.80 $15.07 (0.62) $6.70 $19.78 (0.66)
39 Troop Beverly Hills Sony $6.90 $19.38 (0.64) $6.50 $25.43 (0.74)
40 Tap Sony $6.70 $16.15 (0.59) $6.40 $21.19 (0.70)
41 Deepstar Six Sony $7.10 $8.61 (0.18) $5.80 $11.30 (0.49)
42 Johnny Handsome Sony $6.00 $21.53 (0.72) $5.00 $28.25 (0.82)
43 Music Box Sony $7.10 $19.38 (0.63) $4.90 $25.43 (0.81)
44 Immediate Family Sony $2.20 $15.07 (0.85) $4.30 $19.78 (0.78)
45 Listen to Me Sony $1.60 $16.15 (0.90) $3.80 $21.19 (0.82)
46 Physical Evidence Sony $3.60 $18.30 (0.80) $3.40 $24.02 (0.86)
47 Old Gringo Sony $6.00 $36.51 (0.84) $3.20 $47.90 (0.93)
48 Loverboy Sony $2.00 $10.77 (0.81) $3.20 $14.13 (0.77)
49 Sing Sony $2.20 $15.07 (0.85) $2.40 $19.78 (0.88)
50 Winter People Sony $4.40 $17.23 (0.74) $2.10 $22.60 (0.91)
51 Welcome Home Sony $5.10 $15.07 (0.66) $1.70 $19.78 (0.91)
52 Adventures of Milo and Otis Sony $3.10 $8.61 (0.64) $1.20 $11.30 (0.89)
53 The Big Picture Sony $8.40 $8.61 (0.02) $1.20 $11.30 (0.89)
54 Slaves of New York Sony $7.80 $6.46 0.21 $1.20 $8.48 (0.86)
55 Eat a Bowl of Tea Sony $8.40 $2.15 2.90 $1.20 $2.83 (0.58)
56 To Kill a Priest Sony $8.20 $10.77 (0.24) $1.10 $14.13 (0.92)
57 Me and Him Sony $8.20 $8.61 (0.05) $1.10 $11.30 (0.90)
58 Bloodhounds of Broadway Sony $8.20 $3.23 1.54 $1.10 $4.24 (0.74)
59 The War of the Roses 20th Century Fox $80.80 $26.92 2.00 $63.80 $35.32 0.81
60 The Abyss 21st Century Fox $48.40 $48.35 0.00 $44.60 $63.44 (0.30)
61 Weekend at Bernie’s 22nd Century Fox $30.20 $10.77 1.80 $22.30 $14.13 0.58
62 Say Anything 23rd Century Fox $17.50 $14.00 0.25 $14.60 $18.37 (0.21)
63 Skin Deep 24th Century Fox $16.60 $10.77 0.54 $14.00 $14.13 (0.01)
64 The Fabulous Baker Boys 25th Century Fox $14.10 $14.00 0.01 $13.20 $18.37 (0.28)
65 Millenium 26th Century Fox $8.20 $16.15 (0.49) $4.70 $21.19 (0.78)
66 Worth Winning 27th Century Fox $2.20 $14.00 (0.84) $3.40 $18.37 (0.81)
67 Gleaming the Cube 28th Century Fox $5.30 $11.84 (0.55) $2.70 $15.54 (0.83)
68 How I Got Into College 29th Century Fox $1.30 $12.92 (0.90) $1.80 $16.95 (0.89)
69 When the Whales Came 30th Century Fox $7.50 $4.31 0.74 $1.10 $5.65 (0.81)
70 Batman Warner Bros $311.50 $53.73 4.80 $229.10 $70.51 2.25
71 Driving Miss Daisy Warner Bros $101.20 $8.61 10.75 $77.60 $11.30 5.87
72 Tango & Cash Warner Bros $48.90 $59.12 (0.17) $46.70 $77.57 (0.40)
73 Lean on Me Warner Bros $29.80 $16.15 0.85 $22.90 $21.19 0.08
74 Her Alibi Warner Bros $16.80 $21.53 (0.22) $15.00 $28.25 (0.47)
75 Next of Kin Warner Bros $13.20 $12.92 0.02 $11.70 $16.95 (0.31)
76 Pink Cadillac Warner Bros $10.10 $20.46 (0.51) $11.40 $26.84 (0.58)
77 Young Einstein Warner Bros $13.60 $4.31 2.16 $10.20 $5.65 0.81
78 Dead-Bang Warner Bros $6.70 $15.07 (0.56) $6.40 $19.78 (0.68)
79 Dead Calm Warner Bros $7.60 $9.69 (0.22) $6.10 $12.71 (0.52)
80 Second Sight Warner Bros $5.80 $10.77 (0.46) $4.90 $14.13 (0.65)
81 See You in the Morning Warner Bros $5.10 $18.30 (0.72) $4.40 $24.02 (0.82)
82 In Country Warner Bros $3.80 $19.38 (0.80) $3.50 $25.43 (0.86)
83 Cookie Warner Bros $6.40 $14.00 (0.54) $2.60 $18.37 (0.86)
84 How to Get Ahead in Advertising Warner Bros $8.60 $5.38 0.60 $1.40 $7.06 (0.80)
85 Powwow Highway Warner Bros $8.40 $4.31 0.95 $1.20 $5.65 (0.79)
86 Bert Rigby, You’re a Fool Warner Bros $7.50 $14.00 (0.46) $1.10 $18.37 (0.94)
87 Penn & Teller Get Killed Warner Bros $8.20 $8.61 (0.05) $1.10 $11.30 (0.90)
88 Checking Out Warner Bros $8.20 $5.38 0.52 $1.10 $7.06 (0.84)
89 Honey, I Shrunk the Kids Walt Disney $145.50 $23.69 5.14 $111.20 $31.08 2.58
90 Dead Poets Society Walt Disney $92.50 $21.53 3.30 $74.40 $28.25 1.63
91 The Little Mermaid Walt Disney $78.10 $21.53 2.63 $62.00 $28.25 1.19
92 Turner & Hooch Walt Disney $71.20 $19.38 2.67 $54.60 $25.43 1.15
93 Three Fugitives Walt Disney $36.30 $18.30 0.98 $29.10 $24.02 0.21
94 An Innocent Man Walt Disney $19.70 $18.30 0.08 $17.00 $24.02 (0.29)
95 Blaze Walt Disney $15.00 $19.38 (0.23) $14.70 $25.43 (0.42)
96 New York Stories Walt Disney $10.70 $20.46 (0.48) $8.20 $26.84 (0.69)
97 Gross Anatomy Walt Disney $7.80 $12.92 (0.40) $8.10 $16.95 (0.52)
98 Disorganized Crime Walt Disney $7.80 $11.84 (0.34) $7.10 $15.54 (0.54)
99 Cheetah Walt Disney $9.20 $7.54 0.22 $7.10 $9.89 (0.28)
All Film Average $27.68 $17.28 0.67 $21.57 $22.67 (0.08)
First Quartile $7.00 $10.77 (0.55) $3.45 $14.13 (0.81)
Median $10.50 $16.15 (0.02) $8.70 $21.19 (0.54)
Third Quartile $33.25 $20.46 0.99 $28.20 $26.84 0.17
Standard Deviation $41.62 $10.17 2.08 $31.70 $13.35 1.21
Interquartile range $26.25 $9.69 1.54 $24.75 $12.71 0.98