Arundel Case Solution

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Arundel Partners
Edgefield Consulting

As a new business opportunity arises, so do some of the uncertainties that come along with it. Our company has been brought in to evaluate some of these uncertainties that come along when unchartered territory is explored. Arundel Partners has an idea that has great potential, but there are a few problems that must be addressed in order for the idea to become reality. First, we will look at potential limited partners. More than likely general partners will not have experience or specialized knowledge in the movie industry. They do not currently see the value in sequel rights, how they will be able to make money off of these investments in the rights, or understand why studios would
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This would help give Arundel Partners an advantage while negotiating because studios would normally misprice the rights to be lower than actuality, since it is not normality for them to assign a value to sequel rights before the first film was in production. Through the use of a simple Net Present Value (NPV) calculation, we can determine the expected profitability of the hypothetical sequels in question. The NPV is calculated by discounting future cash inflows and outflows by a rate that is adjusted for riskiness of the investment, the required rate of return. In this case of purchasing movie sequel rights the discount rate is 15 percent. We are expecting to produce every film sequel that has a positive NPV, when computing the NPV of this investment decision in the first assumption. That is, every sequel that we predict to be profitable. However, we must take into account that we are buying the rights to all of the possible sequels, even if they are not profitable. When we sum up all of the positive NPVs, 25 in total, then we must divide that number by every film in which sequel rights were purchased, 99 total. Even if a sequel is deemed unprofitable and not produced, we have already purchased the rights it. This strategy would provide a positive NPV of $4.35. However, producing 25 films is not very feasible due to
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