Arundel Partners: The Sequel Project

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Case

Reference no. 9-202-S01

Spanish language

Subject category: Finance, Accounting and Control

Authors: Timothy A Luehrman (Harvard Business School); William A Teichner (Harvard Business School)

Published by: Harvard Business Publishing

Originally published in: 1992

Version: 12 June 1992

Length: 21 pages

Data source: Field research

Topics: Decision trees; Managing uncertainty; Capital budgeting; Option pricing; Real options; Securities analysis; Copyright; Cash flow; Financial instruments; Valuation; Debts; Contracts; Securities

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Abstract

This is a Spanish version. A group of investors is considering buying the sequel rights for a portfolio of feature films. They need to determine how much to offer to pay and how to structure a contract with one or more major US film studios. The case contains cash flow estimates for all major films released in the United States during 1989. These data are used to generate estimates of the value of sequel rights prior to the first film's release. Designed to introduce students to real options and techniques for valuing them. It clearly illustrates the power of option pricing techniques for certain types of capital budgeting problems. Also illustrates the practical limitations of such techniques.

Locations:

California; United States

Industries:

Film; Arts, entertainment & sports

Size:

Gross revenue USD2.1 billion revenues

Other setting(s):

1992