rundel Partners case
Trang Ho
I took a stab at pricing the option for the sequel rights.
Assumptions:
- Negative costs will be 120% of first film
- Net inflows will be 70% of first film
- Arundel Partners will buy a portfolio similar to the one in Exhibit
6 (portfolio of 99 films)
- Will exercise option if the first film net inflows is greater than
$27.68M (average of all film net inflows)
- Discount rate is 6% semiannual
- Number of time periods is 8 for calculating PV(T=0) of net inflow of
sequel (2*4years = 8 periods)
Based on those assumptions, my calculations:
- Total cash inflow from portfolio is $430.89M
- Divide total cash inflow by 99: $4.35M per film is the maximum price
of the option for Arundel to get 0 cash flow.
Does this seem reasonable? Feel free to correct/modify my assumptions.
Thanks!
Trang
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Trang Ho | SEMBA 2012
London Business School
Regent's Park | London NW1 4SA
Email: tho.se...@london.edu
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Ayse Zeynep Saka
Hey there!
I tried to reach the cost of a film trying both alternatives as described on the last page, page 7.
#1- under the initial assumption that arundel will produce every movie if the profit is >0 we reach a total revenue of $824.8 m and that divided by 99, the cost of each film is max $8.33 m. Using $8.33 m as min revenue requirement - since arundel would want to make more than they spend for each movie - the average cost of each movie remains the same around $8 m.
(these calculations made using exhibit 6)
#2- under initial assumption that arundel will produce every movie if the discounted Profit is>0 we reach a total revenue of $847.7 m and that divided by 99, the cost of each film is max $8.56 m. Using $8.56 m as min discounted revenue requirement - because same reason as above - the average cost of each movie remains again around $8 m.
The case states that the studies would be willing to negotiate if the offer per movie is more than $2 m, so I'm thinking $8 m per movie is a lot of money left on the table :-). However, considering their max amount will be where the cost meets profits, the above sounds logical to me, any thoughts? :-/
Trang, I am with you with all your assumptions except I couldn't follow why you chose to use the first film revenue average and not the sequel film revenue average and also why revenue average and not say the cost average...? I also couldn't get to $430 m using your assumptions, what am I doing wrong...? =\
From a bargain point of view, I like your number a lot better :-D I was wondering if we were to use solver to determine the min revenue and/or profit value, which would maximize the profit...? In this scenario the cost of film would not be determined by NPV of profits=0 but NPV of profits=max
Thoughts...?
Good night! :-)
Zeynep
azs
Sent from my iPad
> <Arundel Partners - Exhibits - THO.xls>
Ayse Zeynep Saka
Hey there, wanna meet at school tomorrow evening to finish the case?
On my way to london... :-)
Empower your Business with BlackBerry® and Mobile Solutions from Etisalat
Trang Ho
It would be great to work together to finish the case.
zey...@gmail.com
Haha, no when I said tomorrow I meant Wednesday evening too, because I'm already in tuesday, it 9:30 am here in dubai, am sitting in the plain to london! :)
Wednesday from late afternoon onwards I'm free, whenever you can make it.. ;-)
Trang Ho
Rajinikanth Sambasivan
Should we meet over phone today evening? There were 5 questions in the assignment should we discuss the answer for others? I guess Q2 is the key?
Cheers,
-Raj
-----Original Message-----
From: acf...@googlegroups.com [mailto:acf...@googlegroups.com] On Behalf Of Trang Ho
Sent: Tuesday, January 31, 2012 5:36 AM
To: <zey...@gmail.com>
Cc: <acf...@googlegroups.com>
Subject: Re: rundel Partners case
Hahaha so glad we're on the same day! Ok, let's meet on Wed evening. I'll be free around 6/6:30pm. Have a safe and pleasant flight!
On 31 Jan 2012, at 05:26, "zey...@gmail.com" <zey...@gmail.com> wrote:
>
>
> Haha, no when I said tomorrow I meant Wednesday evening too, because I'm already in tuesday, it 9:30 am here in dubai, am sitting in the plain to london! :)
>
> Wednesday from late afternoon onwards I'm free, whenever you can make it.. ;-)
>
>
> Empower your Business with BlackBerry(r) and Mobile Solutions from Etisalat
>
> -----Original Message-----
> From: Trang Ho <tho.se...@london.edu>
> Date: Tue, 31 Jan 2012 05:20:07
> To: <acf...@googlegroups.com><acf...@googlegroups.com>
> Cc: acf...@googlegroups.com<acf...@googlegroups.com>; azs<zey...@gmail.com>
> Subject: Re: rundel Partners case
>
> I have an emba mid-week class thing until 8:30pm tomorrow (Tuesday). Is that too late? If so, can we meet on Wed evening?
>
> It would be great to work together to finish the case.
>
> On 31 Jan 2012, at 05:13, "Ayse Zeynep Saka" <zsaka.de...@london.edu> wrote:
>
>>
>> Hey there, wanna meet at school tomorrow evening to finish the case?
>>
>> On my way to london... :-)
>>
>>
>> Empower your Business with BlackBerry(r) and Mobile Solutions from Etisalat
a.zeynep saka
Trang Ho
Attached is the excel that Zeynep and I worked on last night. Check
the worksheet called Arundel Real Options Valuations. The maximum
per-film options price is $5.12M. There is a table of parameters used
in the calculations. I'll write-up the explanation for why we used
certain parameters and certain assumptions (answer to question 2).
The first table (Binomial Tree for Net Inflow of Sequel using
lognormal distribution) is built based on the lecture notes "How to
Build a Binomial Tree for Asset Values". It is built starting with the
discounted cash flow of the average hypothetical net inflow for the
sequels in the portfolio (value of $13.53M).
The second table (Binomial Tree for Per-Film Option Price using
Rick-Neutral Probabilities) is built based on lecture notes
"Risk-Neutral Probabilities in the Lognormal Model".
Best,
Trang
Javier Echave
My apologies for being missing at this end. At this stage I can only be helpful by bringing some comments tomorrow (not sure if still on time) but definitely by stepping up as voluntary to lead the next 2 cases
Trang, Zeynep, many thanks for your effort on this, much appreciated
Javier
> <Arundel Partners Case.doc>
Trang Ho
I've attached the document with the answers to Question 2, 3 and 5.
I've included a sensitivity analysis for the uncertainty factors: WACC
and volatility. Question 3 required it.
Please review and let me know if it makes sense. I'll do a final
cleanup later this evening.
Best,
Trang
Trang Ho
and find NPV on the sequel project?
Trang Ho
Zeynep, how's it going with the questions? I can do question 4 if you're in class today.
zey...@gmail.com
Hey, I just got out of class and still am with my group for NVD.
If you have time go ahead, but I also saved my evening for it, so if you don't, I will be on it as agreed.
Cheers,
Empower your Business with BlackBerry® and Mobile Solutions from Etisalat
zey...@gmail.com
Started to work on it now Trang, have you done anything..?
Empower your Business with BlackBerry® and Mobile Solutions from Etisalat
-----Original Message-----
From: zey...@gmail.com
Date: Fri, 3 Feb 2012 16:18:29
To: <acf...@googlegroups.com>
Reply-To: zey...@gmail.com
Subject: Re: rundel Partners case
If you have time go ahead, but I also saved my evening for it, so if you don't, I will be on it as agreed.
Cheers,
Trang Ho
Ayse Zeynep Saka
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Ayse Zeynep Saka
Ayse Zeynep Saka
to the DCF calculation, I can see there is no terminal value added, which in our case it natural I guess since the revenues stop at year 8. However you wanna consider the distribution of other revenues by year? Exhibit 2 last column on the right gives the percentage distributions, so the 37.90 should be spread out by those percentages from year 2 until 8, that ofcourse if we want to be really precise. What's your say?
another revised draft attached
>>>>>>>>>>> __________ <Arundel Partners - Exhibits - THO.xls>
>>>>>>>>>>
>>>>>>>>>> _____________________________________________________________
>>>>>>>>>> _________
>>>>>>>>>>
>>>>>> --
>>>>>> Trang Ho | SEMBA 2012
>>>>>> London Business School
>>>>>> Regent's Park | London NW1 4SA
>>>>>> Email: tho.se...@london.edu
>>>>>
>>>>>
>>>>>
>>>>> --
>>>>> Trang Ho | SEMBA 2012
>>>>> London Business School
>>>>> Regent's Park | London NW1 4SA
>>>>> Email: tho.se...@london.edu
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>>> Trang Ho | SEMBA 2012
>>> London Business School
>>> Regent's Park | London NW1 4SA
>>> Email: tho.se...@london.edu
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>>
>> --
>> Trang Ho | SEMBA 2012
>> London Business School
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>> Email: tho.se...@london.edu
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Trang Ho | SEMBA 2012
London Business School
Regent's Park | London NW1 4SA
Email: tho.se...@london.edu
______________________________________________________________________
This email has been scanned by the MessageLabs Email Security System on behalf of the London Business School community.
For more information please visit http://www.symanteccloud.com ______________________________________________________________________
______________________________________________________________________
This email has been scanned by the MessageLabs Email Security System on behalf of the London Business School community.
For more information please visit http://www.symanteccloud.com ______________________________________________________________________
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Ayse Zeynep Saka
Attached is the final version of the paper. I didn’t bother changing the DCF calculation. Let me know what you think, if in favor of changing I can come in early tomorrow and take care of it.
I am making a copy of the one in case I don't get any request for edit. If it's edited, I guess we'll make a new copy tomorrow morning before the class.
See you tomorrow,
Zeynep
-----Original Message-----
From: acf...@googlegroups.com [mailto:acf...@googlegroups.com] On Behalf Of Ayse Zeynep Saka
Sent: Friday, February 03, 2012 6:43 PM
To: acf...@googlegroups.com
Subject: RE: rundel Partners case