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Fin 488 Case Study 3 Arundel
Course: Advanced Financial Policy (FIN 488)
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University: James Madison University
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Arundel Case 3
FIN 488 – Ullrich
I. Executive Summary
The valuation of a sequel right’s worth ranges from $4-5.5 million profit per sequel with
multiple possibilities of falling outside that range depending on which sequels Arundel Partners
ultimately decide to make. Net Present Value (NPV) analysis poses a valuation of $4.88 million
per sequel right barring the fact that Arundel Partners creates only the 26 sequels with positive
NPVs out of the 99. Valuation using the Black-Scholes model presents an option price of about
$5.36 million using the 1989 movie data.
II. NPV Analysis
As stated above, there are 26 potential sequels that pose a profitable NPV after
discounting the hypothetical sequel cash flows back to present day. Even though $4.88 million
per sequel right is the highest valuation through NPV analysis, it may be considered
unreasonable to assume that Arundel will decide to create all 26 sequels for the films with
profitable NPVs. I decided to further subdivide the 26 profitable sequels into categories. As seen
in Attachment I in Appendix A, breaking the films up into genres or by studios diminishes the
original $4.88 million valuation. For example, the studio with the highest total NPV was the
Walt Disney Company with five profitable films. If Arundel decides to only make the profitable
Disney sequels, the profit per sequel right goes down to $1.13 million.
In general, profit per sequel decreases the less films you make. If Arundel decides to create
the top 15 profitable sequels, the profit per sequel is $4.48 million. This number goes down to $3.73
million and $2.70 million for the top ten and top five sequel categories respectively. Out of the 26
profitable sequels, 15 were comedy films. If Arundel makes all of the
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