...Case 5: Arundel Partners Prepare a memo addressing the following questions: 1. Explain why Arundel Partners is interested in purchasing the rights to make sequels of all of the studios movies, rather than just some. Why do they believe this venture is profitable? 2. Suppose that you are a movie executive. You are considering a movie version of the life of President Garfield in the months leading up to his assassination by Charles Guiteau in a Washington DC railroad station in 1881. Your analysts have determined that the expected revenues are $94,556,250. They determine that revenues will be distributed binomially as shown in Exhibit 1 (40% annual volatility). Exhibit 1 shows the possible payoffs and the probability of each state occurring (note this information is provided in an Excel file). Assume that the one-year T-Bill rate is 5% (yield with semiannual compounding). If given the green light, the movie will have the following costs: a. $36MM – Negative Costs (assume it is incurred immediately) b. $25MM – Distribution Fees (assume these are paid in one year) c. $32MM – Distribution Expenses (assume these are paid in one year). Should you accept this project? Why? Suppose that Arundel Partners will give you a $2MM check for the rights to the sequel. Do you accept the project? 3. Suppose you come upon another project with exactly the same costs and possible payoffs. However, this film is a movie version of the popular 1960s television show Gilligan’s Island...
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...Cost of Capital at Ameritrade: 1. What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why? When deciding whether or not to invest in the proposed advertising program and technology upgrades, Ameritrade should consider the following four key factors: 1. Cost of Capital: It is important that Ameritrade understand the risk associated with this project’s cost of capital. Ameritrade should look at the cost of capital to determine if the expected return on this project will be equal to or greater than investing this capital elsewhere. 2. Net present value of the cash flow: After looking at the cost of capital, Ameritrade will want to look at the cash flows for the project and determine the net present value of the cash flows. This will help Ameritrade understand if this is where they want to invest their money, but understanding how much they will receive annually from this project. 3. Accurate discount rate: Ameritrade will want to know if this project can deliver more than the discount rate. It is important to choose an accurate discount rate since an overstatement or understatement could lead to the wrong investment decision because of using an incorrect benchmark. 4. Debt to Equity ratio: Ameritrade should look at their debt to equity ratio compared to other companies in their industry. Since Ameritrade could potentially compare against two different industries, they will want to...
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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 on the option. The proposal is appealing to studios because sales of sequel rights can help them finance initial production, If particular movie becomes a sequel then the value of the option will increase and Arundel will either exercise the right to make the sequel or sell the right either to the original studio or a third party willing to take on the project. The principals at Arundel Partners are inclined to buy a portfolio of all these sequel rights rather than individual films given that Arundel wants to avoid buying the rights of movies that are not expected to perform well. Movie rights are supposed to be purchased prior to films being made. Arundel wants to come up with a decision to either purchase all the sequel rights for a studio's...
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...Read and study CH 17 from McDonald: “Real Options” 3. Read and study CH33 from Hull: “Real Options” 4. Case: Arundel Partners: The Sequel Project Answer the following questions: a. What makes Arundel think it can make money by buying a package of sequel rights? Is the profit opportunity, if it exists, likely to be sustainable? Arundel can make money selling the rights to a higher bid. Another option to make money is by producing the sequel exercising its rights but this will depend on if the net present value of the production movies is higher than the amount of buying the rights. If the future positive cashflows are undervalued Arundel can seek an arbitrage opportunity and buy the rights at the market price. b. Why would the studios be interested in raising money in this fashion? Why not raise the money in more traditional ways? The studio can not raise money in a traditional way because they don´t know when the movie will be popular o not so they don’t have regular cashflows. They also think that the business of movies production can be profitable by selling sequel rights ( this can be perform as an option). If a movie performs with positive cashflows they can invest in the movie production and have profits. The risk here is lower because they don´t have the same risk than the traditional ways of raise money like an asset. c. Why should Arundel pay anything for the sequel rights? The average movie loses money, and a sequel is more costly and has less revenue...
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...Arundel Partners: The Sequel Project Question 1: Arundel Partners thinks they can make money by buying the rights to sequels because of the possible arbitrage opportunity between the price they would pay for an option to sequels and the sequels’ real value. Therefore, valuing the option correctly takes great importance. The partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them because it is of critical importance to Arundel that a number of films and a price per film are agreed upon before either Arundel or the studio knows which films would generate the option of a sequel. If not, once production starts the studio would inevitably have more information on the likeliness that a sequel would be possible. This would put Arundel at a disadvantage, because they would then have to negotiate the price for sequel rights on each film produced while knowing much less than the production studio about the film. For example, if the studio knew that obtaining the rights for the literary work the first movie is based upon took a lot of haggling and work, and that the script has gone through fifteen revisions with six different writers, then the studio may be keen to get rid of the sequel rights. While a film’s profitability is always a gamble, there are often early signs such as these that a movie is going to be a jumbled mess that cost the studio way too much money to produce in the first place. These films tend to do...
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...Arundel Partners Diageo plc Main focus of the case is to recommend a capital structure policy for the organization and develop a tradeoff between tax benefits of higher debts and cost of financial distress. Case provides details about the business model comprising of four divisions and history of the company. It also says firm is planning to divest noncore operations and consolidate the core business of beverage alcohol to reduce expense and increase synergy. Most Importantly, Case includes the key elements of business model and capital structure that have the potential of impacting financial strategy in following ways:- High Interest Coverage and Future Strategy As per the case, Diageo has interest coverage of 5x which is higher than interest coverage value of 4.2x, at which total of taxes paid and distress costs is the least as shown in Diageo’s Monte-Carlo simulation (shown below). Also, in the below simulation, its interest coverage ration should lie in the range of 5x to 3.6x to have optimal coverage. Diageo future strategy is based on organic and inorganic expansion. Under inorganic growth scenario, Diageo needs $6 to $8 billion to acquire other players in the market. To finance these acquisitions, Diageo would raise additional debt from the market. To make this strategy effective, Diageo has to keep very low cost of borrowing, which can only be achieved by keeping high interest coverage ratio and credit rating in the investment grade range. This explains the Diageo’s strategy...
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...Arundel Partners: The Sequel Project 1. Why do the principals of Arundel Partners think they can make profits buying movie sequel rights? They would be interested in purchasing the sequel rights for one or more studios¡¦ entire production over an extended period of not less than a year. If a particular film was a hit, and Arundel thought a sequel would be profitable, it would exercise its rights by producing the sequel. Alternatively, they can sell the rights to the highest bidder. Inevitably, the performance of the original films would not justify sequels, and for them the sequel rights would simply not be exercised. For most movies it becomes quite clear after their first few weeks in theaters whether a sequel would be economical or not, based upon each film's box office performance. 2. Why do they want to buy a portfolio of rights in advance rather than negotiating film-by-film? It is of critical importance to Arundel that a number of films and a price per film is agreed upon before either Arundel or the studio knew which films would generate the option of a sequel. In addition, once production started, the studio would inevitably form an opinion about the movie and the likeliness that a sequel would be possible. This would put Arundel at a disadvantage, because they would then have to negotiate the price for sequel rights on each film produced, while knowing much less than the production studio about the film. 3. Estimate the per-film value of a portfolio of sequel...
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...Arundel Partners – The Sequels Project After evaluation of the proposed acquisition of the movie sequel rights, we recommend to offer movie studios as a per-movie price to purchase the sequel rights for their entire portfolio of movies the studios are going to produce over the next year. Arundel should make an offer to buy sequel rights as the average NPV (on a per film basis ) is $5.51 mn (this is the value calculated using real options method). Hence, we should pay a price below $5.51mn. As per informal inquiries made by us, the studios would be tempted to accept the price of $2mn or more and would not even consider a price below $1mn. We propose that we should negotiate for the price of $2mn. This would give us a profit of $3.51 mn per film. The movie studio might (or might not) be willing to sell these rights at this price because it helps the studios mitigate the risk associated with producing the sequel. Also, the fact that there is no liquid market for rights to produce sequels will also drive the price lower on account of lack of demand. Average value of Sequel rights per film using DCF Analysis Average value of sequel rights per film across all studios 1. There are 99 films in the portfolio. Arundel Partners will only produce films for which hypothetical NPV is greater than zero. Hence, we calculate NPV of each film at Year 0. Since the exhibits state that the values are already preset values, we have not rediscounted them. NPV (At year 0)...
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...1. Purchasing Power Parity Defined a. Once converted to a common currency, national price levels should be equal. b. If goods market arbitrage enforces broad parity in prices across a sufficient range of individual goods, (The law of one price) there should also be a high correlation in aggregate price levels. 2. Consensus Facts PPP c. Real exchange rates tend toward purchasing power parity in the long run (Nominal adjusted for difference in national price levels) d. Convergence Speed for PPP is very slow, deviations of roughly 15% per year. e. Short run deviations from PPP are large and volatile, one month conditional volatility of real exchange rates is of the same order of magnitude as the conditional volatility of nominal exchange rates. Price differential volatility is surprisingly large even when one confines attention so similar classes of highly traded goods. 3. PPP and Its Puzzle: How can we reconcile the enormous short term volatility of real exchange rates with the slow rate at which shocks appear to damp out. (Half life of three to five years) * 1. Creation a. Set in place as a means of setting relative gold parities. 2. Variants of PPP b. The Law of One Price (LOP) i. Domestic currency price of good I is equal to foreign currency price times the exchange rate. ii. Lop states that once converted, goods should sell at the same price in different countries. However it does...
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...Assessment of Pakistani Construction Industry – Current Performance and the Way Forward Rizwan U. Farooqui and Syed M. Ahmed Department of Construction Management, Florida International University, Miami, Florida, USA Sarosh H. Lodi, Professor and Chairman, Department of Civil Engineering, N.E.D. University of Engineering and Technology, Karachi, Pakistan The Pakistani Construction Industry has always been of economic and social significance to the country. In contrast to the prospective share of Pakistani construction in the local and global economic market, conversely, the development of the sector has not been at par with the market demands. With the recent rapid economic growth of the country, Pakistan now offers a growing market for the construction industry. The Government of Pakistan has responded to this opportunity by planning extensive infrastructure expansion programs. All of these programs have the potential to lead the local Industry to establish respect, status and international recognition when the appropriate efforts are extended to achieve the same. Even with the opportunity for growth the challenges will be extensive. This research presents the current state of performance of Pakistani Construction Industry and provides directions for strategic improvement of the construction industry on a sustainable basis. Major findings of the research include: a cultural and behavioral shift in the mind-set of all participants in the construction process especially top...
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...Arundel Partners Case Analysis Executive Summary: A group of investors (Arundel group) is looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights are to be purchased prior to films being made. Arundel wants to come up with a decision to either purchase all the sequel rights for a studio's entire production during a specified period of time or purchase a specified number of major films. Arundel's profitability is dependent upon the price it pays for a portfolio of sequel rights. Our analysis of Arundel's proposal includes a net present value calculation of each movie production company. In order to decide whether Arundel can make money buying movie sequel rights depends on whether the net present value of the production company's movies is higher than the estimated 2M per film required to purchase the rights. Problem Identification: How are the principals of Arundel Partners planning to make money by buying rights to sequels? They would be interested in purchasing the sequel rights for one or more studios¡¦ entire production over an extended period of not less than a year. If a particular film was a hit, and Arundel thought a sequel would be profitable, it would exercise its rights by producing the sequel. Alternatively, they can sell the rights to the highest bidder. Inevitably, the performance of the original films would not justify sequels, and for them the sequel rights would simply not...
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...INTERNAL MEMORANDUM TO: Paul Kagan Associates, Inc. FROM: Yixin Liu SUBJECT: Arundel Partners: The Sequel Project 1. As you had assigned me the task of investigating a possibility of investing in the sequel rights in the US movie industry, I have made some analyses and recommendations as well. 2. The US film industry is on an upward growth after successful first films, thanks to creativity and growing thriftiness in the movie business. 3. Major studios finance film projects, which may or may not be successful in the US and the global market. However, experienced players always invest in independently financed films and the returns are good. 4. A lot of money is involved in production, distribution, and exhibition of films, which eventually...
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...solutions to arundel partners case http://www.justanswer.com/law/0vnrc-solutions-arundel-partners-case.html Executive Summary: A group of investors (Arundel group) is looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights are to be purchased prior to films being made. Arundel wants to come up with a decision to either purchase all the sequel rights for a studio's entire production during a specified period of time or purchase a specified number of major films. Arundel's profitability is dependent upon the price it pays for a portfolio of sequel rights. Our analysis of Arundel's proposal includes a net present value calculation of each movie production company. In order to decide whether Arundel can make money buying movie sequel rights depends on whether the net present value of the production company's movies is higher than the estimated 2M per film required to purchase the rights. Problem Identification: How are the principals of Arundel Partners planning to make money by buying rights to sequels? They would be interested in purchasing the sequel rights for one or more studios¡¦ entire production over an extended period of not less than a year. If a particular film was a hit, and Arundel thought a sequel would be profitable, it would exercise its rights by producing the sequel. Alternatively, they can sell the rights to the highest bidder. Inevitably, the performance of the original...
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...Critical Research Paper “The Mocking of Crist” by Edouard Manet Natallia Kolas Oakton Community College (DP Campus) HUM 123 (6:30 class) 09/27/2011 Even before going to the Art Institute, I knew that I wanted to write about one of Manet’s paintings. I admire his passion to create beautiful art even if it meant going against “old school” standards and principles. “The Mocking of Crist ” really caught my eye because of artist’s unusual interpretation of a religious subject. I felt intrigued by the idea of a red bearded Crist looking bored and out of place. When it was first presented to the public, “The Mocking of Crist ” received tons of negative criticism for the artist’s painting techniques, his choice of lower-class people as models and, of course, his interpretation of Jesus Christ’s character. “The Mocking of Crist” was painted between 1864 and 1865 in France. It is a great example of the Realist movement in art. Manet’s original title for the painting was “Jesus Insulted by the Soldiers.” Clearly, Manet did not mean to represent the soldiers' behavior in the way that title implied. Recently, once again, its name was changed to “Jesus Mocked by Soldiers.” Some sources also refer to it as “Christ Scourged.” In the center, Christ, the brightest figure, is sitting in a chair surrounded by three other male figures, soldiers. This scene is also known as the mocking of the “king of the Jews” before the execution. In this painting, the...
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...specific audience. Effectively uses interpersonal skills to relate with others which prove to be an asset in team environments and achieving results in team oriented activities. Excels in communication with children and establishes a rapport that produces results. | Education | | Pursuing Bachelor of Arts Morgan State University, Baltimore, MarylandMajor: Telecommunications Emphasis: Radio CommunicationsCompleted 112 Credit Hours toward DegreeAssociates of Arts, General Studies 2008 Anne Arundel Community College, Arnold, Maryland | Experience | | October 2009 – Present Anne Arundel County Public SchoolsCustodianEffectively works in team environment to accomplish designated tasksMaintain healthy environment for staff and student bodyExhibits flexibility based on the needs of the school systemEvaluates current processes and provides process improvement recommendations to increase productivity and efficiency | | | | | * June 2008 – January 2010Anne Arundel County Recreation and Parks * Senior Counselor * Coordinated group activities for over 50 childrenPerformed administrative paperwork for activities Gathered, filed and protected Personal Identifiable Information of...
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