Arundel Partners: The Sequel Project Case Solution
T.C Fox is the third biggest studio in the category and consists of successful films productions in the past decade. The portfolio can make it difficult for Arundel to invest as it will bear negative cash flows as compared to the cost of negatives.
Warner bros can be an opportunity for Arundel to invest however,it can generate low profit margins as compared to the estimated profits. Warner bros. can also bear high costs but produce moderate level of cash flows under discounted value.
The investment associated with MCA universal can be a good deal for Arundel to invest asthe required minimum value of negative cost is under 6% of discount and can also generate expected profit amounts for reinvestment.
The biggest opportunity for Arundel can be to invest in W.D Company studios asit has the smallest portfolio of films with some sequels. Therefore,in order to avail this deal, Arundel must immediately engage in a contract with W.C Company for over one year of maturity. The expected value profit can be the biggest of all other studios.
Estimated Portfolio of the given studios
The analysis shows that MCA generated $1,261 million in the first film productions and has estimated overhead cost of 20% in the sequel films. The total revenues other than the rentals are quite low as compared to the market valuation.
The total cost of production is generating distribution fee and expense with fixed negative cost of $243 million. The total cost associated with this operating costs is added in order to subtract from total revenues (Rental plus other).
Net profit is going to be less for the potential investors asit required high negative cost which can hinder from getting thedesired profit margins as well as it would devalue the current film production, distribution as well as exhibition.
The proposed negative cost for Arundel can be calculated at discount of 6% of investment for positive cash flows. Over here, the situation is favourable for Arundel to invest asit allows at least 7.5% of risk-free rate as well as extra profits of 4% of investment.
The future cash flows calculated through the formula of net profit exclude negative costs and rental revenues. The total sum shows that Arundel can invest in order to generate 12% profit margins from the entire studio.
The portfolio under the structure of paramount shows that the total revenue is high asrentals play an important role to produce more earnings. Over here, the situation of investment can be unfavourable to Arundel as well as it is very costly in terms of high negative costs.
The totalcosts are associated with all the costs incurred in the film productions. Moreover, the net profit shows low profit margins because of high costs and distribution fees.
The proposal of Arundel to take over the sequel of Paramount pictures can be a wrong decision to invest asthe results are clearly unfavourable to Arundel and havenegative profits as compared to the actual level of earnings.
The total discounted negative costs for Arundel is $181 million and shows less profitability over the use of investments. The net cash flows also show negative performance in accordance with the calculated figures in the exhibits.
Sony Pictures is considered the lowest choice for the company to invest as it requires highest negative cost or initial cost for the partnership in sequel projects.
The studio has the most developed films as compared to all others and produces high revenues in rental as well as in distribution to theatres. Sony pictures produced $1431 million of revenues in 1989 and expected to grow the network in the upcoming years………..
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