Question
Suppose Fox Sports is considering buying the soccer league TV rights of Panam, El Salvador, Guatemala, Nicaragua and Honduras. The success of the investments depends
Suppose Fox Sports is considering buying the soccer league TV rights of Panam, El Salvador, Guatemala, Nicaragua and Honduras. The success of the investments depends on the number of subscribers. If the number is "high", the total expected 5-year return (in USD) is 40% for Fox Sports per market; if the number is "low," the total expected 5-year return (in USD) is -20% for Fox Sports per market. Suppose, the probability of a high number of subscribers is 60%. To simplify suppose the upfront initial investment per market is USD 100. Evaluate the investment under 2 situations (a & b below), using a discount rate of 14%: a.- Fox Sports decides to test one market, say Panama. If successful in test market, Fox Sports will enter the other (& assume Fox Sports now knows it will be successful in all the other markets). b.- Fox Sports decides to buy all TV rights simultaneously.
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