London Business School Advanced Corporate Finance Brandon Julio, Spring 2012 Students: Zeynep Saa ! "rang #o ! $a% Sa&'asivan ! Javier (chave ! )ausi Ash Arundel Partners: The Sequel Project
"he &a*i&u& per per+l& price -or the the se.uel rights that Arundel /artners /artners should pay is $5.12M - Arundel /artners ere ere to use the traditional 3CF ðods to nd the value othe se.uel rights, the 4/5 ould 'e +67829 loss per+l& see Appendi* 1; Calculation Details
?9; is used to gure out the value o- the state varia'le -or the real options &odel "he state varia'le varia'le is the average average hypothetical net in=o o- the se.uel, se.uel, discounted using a @9 "his state varia'le varia'le is unaEected 'y &anagerial actions and descri'es descri'es the &ain &ain source o- ris that aEects the se.uel rights e*ercise e*ercise option under consideration Parameters
Avg #ypothetical 4et n=o o- Se.uel Avg #ypothetical 4egative Cost o- Se.uel CC ' d i l di
Values
;
621>? 622? 2 @
London Business School Advanced Corporate Finance Brandon Julio, Spring 2012 Students: Zeynep Saa ! "rang #o ! $a% Sa&'asivan ! Javier (chave ! )ausi Ash Mnce e have the 'ino&ial tree, e replace the asset values ith the payoE in each state, then value the option using 'acard induction or dyna&ic progra&&ing "o do the evaluation, e calculate the ris+neutral pro'a'ilities "hese are eights on the cash =o that allo us to discount 'y continuously co£ed ris+-ree rate 129 per l& see (*hi'it 2; )urther considerations "or #eal *+tions Valuation a++roach
$eal options valuations recognise that the partners at Arundel o'tain valua'le in-or&ation a-ter the se.uel rights have 'een purchased and the rst l&s are released in the theatres "his additional in-or&ation allos the partners to &ae in-or&ed actions in response, 'ased on dyna&ic decision &aing "his approach allos -or valuing real assets ith so&e degree o- operating =e*i'ility, incorporating the value o- the =e*i'ility into the option price t values the option to e*ercise 'ut not the o'ligation to &ae -uture invest&ents t is 'ased on the la o- one price the price o- to port-olios ith the sa&e cash =os in every state o- the orld &ust 'e the sa&e; Mption value increases ith great uncertainty see (*hi'it @; "he &a%or uncertainties are Arundel /artnersD
London Business School Advanced Corporate Finance Brandon Julio, Spring 2012 Students: Zeynep Saa ! "rang #o ! $a% Sa&'asivan ! Javier (chave ! )ausi Ash
London Business School Advanced Corporate Finance Brandon Julio, Spring 2012 Students: Zeynep Saa ! "rang #o ! $a% Sa&'asivan ! Javier (chave ! )ausi Ash APP-&D/ 1 Calculations usin! traditional DC) and 0static &PV Traditional DC) Method a,era!e h3+othetical sequel re,enues and costs4
17
1 0
11
12
1@
18
$evenues S "heatre Mther
6 108 6
@?
Costs 3ist Fees 3ist (*p 4egative Costs
6 12; 6 18>;
"otals $ .624
DC)
6 212; 6 212;
6 2?8;
6 108
6
@?
6 17;
6 1@;
6
6
212
>
inomial Tree "or &et n7o8 o" Sequel usin! lo!normal distri'ution4
0 6 6 1@>@ 11 6 >8
1
2 6 2?21 6 1@>@ 6 ?@
@ 6 @7> 6 11 6 >8 6 8?>
8 6 >8?@ 6 2?21 6 1@>@ 6 ?@ 6 @@>
> 6 ??1 6 @7> 6 11 6 >8 6 8?> 6 2@
6 1100> 6 >8?@ 6 2?21 6 1@>@ 6 ?@ 6 @@> 6
? 6 1>0 6 ??1 6 @7> 6 11 6 >8 6 8?> 6
7 6 221@0 6 1100> 6 >8?@ 6 2?21 6 1@>@ 6 ?@ 6
6 @1@72 6 1>0 6 ??1 6 @7> 6 11 6 >8 6
10 6 88>02 6 221@0 6 1100> 6 >8?@ 6 2?21 6 1@>@ 6
11 6 @10? 6 @1@72 6 1>0 6 ??1 6 @7> 6 11 6
12 6 780 6 88>02 6 221@0 6 1100> 6 >8?@ 6 2?21 6
London Business School Advanced Corporate Finance Brandon Julio, Spring 2012 Students: Zeynep Saa ! "rang #o ! $a% Sa&'asivan ! Javier (chave ! )ausi Ash 1
2@ 6 11?
@@> 6 1 6 07@
8?> 6 2@ 6 11? 6 0>7
?@ 6 @@> 6 1 6 07@ 6 081
>8 6 8?> 6 2@ 6 11? 6 0>7 6 02
1@>@ 6 ?@ 6 @@> 6 1 6 07@ 6 081 6 020
(*hi'it 1 Bino&ial tree 'ased on average hypothetical net in=os o- se.uel
inomial Tree "or Per%)ilm *+tion Price usin! #is%&eutral Pro'a'ilities4
0 $ 5.12
1 6 7?@ 6 2>8
2 6 18> 6 8> 6 10
@ 6 2@? 6 ?? 6 212 6 0@>
8 6 @70 6 1@@ 6 @2 6 07@
> 6 >>8 6 22?? 6 ?10 6 18 6 028
6 11? 6 @?07 6 12>? 6 @1 6 0>2 6 008
? 6 1@78 6 >7?7 6 21@ 6 07 6 111 6 010
7 6 201? 6 0?2 6 @07 6 11@0 6 2@8 6 02@
6 28@7 6 1@1 6 >71 6 20@8 6 87@ 6 0>>
10 6 82>8 6 201?8 6 08 6 @>1? 6 ?2 6 1@1
11 6 1180 6 281> 6 1@@7 6 >?@ 6 172 6 @11
12 6 7?>11 6 82>2@ 6 201>1 6 02 6 @88 6 ?82
London Business School Advanced Corporate Finance Brandon Julio, Spring 2012 Students: Zeynep Saa ! "rang #o ! $a% Sa&'asivan ! Javier (chave ! )ausi Ash 6 +
(*hi'it 2 Bino&ial tree -or per+l& option price using ris+neutral pro'a'ilities
Sensiti,it3 Anal3sis on uncertainties o" 9ACC and σ ,olatilit34
@ ?@ 7@ @ 10@ 11@ 12@ 1@@ 18@ 1>@ 1@ 1?@ 17@
71 07 10 0 11 @ 12 ? 18 0 1> 8 1 ? 17 1 1 8 20 7 22 1 2@ > 28 7
1 07 10 0 11 @ 12 ? 18 0 1> 8 1 ? 17 1 1 8 20 7 22 1 2@ > 28 7
101
111
121
1@1
181
1>1
11
07
07
07
07
07
07
07
100
100
100
100
100
100
100
11@
11@
11@
11@
11@
11@
11@
12?
12?
12?
12?
12?
12?
12?
180
180
180
180
180
180
180
1>8
1>8
1>8
1>8
1>8
1>8
1>8
1?
1?
1?
1?
1?
1?
1?
171
171
171
171
171
171
171
18
18
18
18
18
18
18
207
207
207
207
207
207
207
221
221
221
221
221
221
221
2@>
2@>
2@>
2@>
2@>
2@>
2@>
287
287
287
287
287
287
287
(*hi'it @ Sensitivity analysis on uncertainty -actors:
