Aruden partners - Submitted by Anil Anjum Nisar Ahmed...

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Submitted by, Anil Anjum Nisar Ahmed Murtaza Naqvi Omer Akif Arundel Partners: The Sequel Project If the first movie was a success they would exercise their right and make the sequel or sell it to the highest bidder. Otherwise they would just write it off their investment schedule. The chances of making a profitable business would largely depend on a good estimate of the rights present value at the contract date. To less would not tempt the studios (inquiries indicated not less than USD 2 million per movie) and too much would not make the business profitable. Calculating the NPV of all the profitable sequels of a studio. The data used assumes that the sequel’s estimated negative cost and US theater rentals are 120% and 70% respectively, of the corresponding items for the first film. In exhibit 7 we find the present value at year 4 and the PV of the negative cost at year 3 from the hypothetical sequels. Since the right of a film give us the opportunity to decide whether investing into the sequel is profitable, the decision is made on Year 3. If at that time the first film had no big success, the sequel would be immediately discarded, thus no investment would be made and the chances of loss would be null.
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