Case | HBS Case Collection | June 1992

Arundel Partners: The Sequel Project

by Timothy A. Luehrman

Abstract

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 U.S. 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.

Keywords: Rights; Debt Securities; Contracts; Cash Flow; Valuation; Capital Budgeting; Entertainment and Recreation Industry; United States;

Citation:

Luehrman, Timothy A. "Arundel Partners: The Sequel Project." Harvard Business School Case 292-140, June 1992.