Arundel Partners

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DUISENBERG SCHOOL OF FINANCE MSc FINANCE Corporate Finance and Banking

Arundel Partners: The Sequel Project
The East Wind
Amol Marathe 140843 Linglan Tan 140838 Xiangyu Zhou 140912 Date: 20/11/2014

Arundel Partners: The Sequel Project

The East Wind

Executive Summary:
Arundel group is looking into the project of purchasing the sequel rights associated with films produced by one or more major movie studios in United States. Arundel believes that they can calculate a value for the rights to produce these sequels and take a position by investing in a portfolio conformed of these rights. Arundel Partners plans to make money by negotiating an option price below its net present value calculation and obtaining its expected returns
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Since studios know better about production, there will also exist information asymmetry between Partners and studios. This will increase the Arundel Partner’s risk of buying unprofitable sequel rights. If Partners want to buy sequel rights of successful films, the studios will also charge very high prices.

2. In all the three methods below, we calculated the per-film value of a portfolio first, and then make a summary based on the six main studios. The classified summary should help us analyze different film sequel rights and which price Arundel Partners should pay. In the DCF Valuation, we discounted the PV of Net Inflows at Year 4 and PV of Negative Cost at Year 3 to Today respectively. Then we make the difference of the two discounted PV to get the value of sequel rights. According to Exhibit 1, only MCA UNIVERSAL and THE WALT DISNEY COMPANY get positive portfolio valuation. If Arundel Partners can buy sequel rights cheaper than 4.58 million dollars per film (MCA UNIVERSAL) and 6.21 million dollars per film (THE WALT DISNEY COMPANY) respectively, the sequel rights are obviously profitable. On the other hand, Partners should be prudential about rights options due to negative valuations in other four studios. As we know that the sequel rights are not obligation and Arundel Partners can choose not to exercise the option, we apply Decision-tree approach. If

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