Suppose that Arundel purchases the sequel rights to all 99 movies from exhibit 7 and exercises every option to produce a sequel. Exhibit 7 provided the average cost (at t=3) and average cash inflow (at t=4) for a sequel. What is the NPV at t=0 of producing a sequel, on average? Dicuss. Assume a discount rate of 12 percent here and throughout the assignment.

PV of Net Inflows First Film PV of Negative Cost at Year 0 Hypothetical Sequel PV of PV of Negative Net Inflows Cost at One-Year Year 3 Return at Year 1 One-Year Return at Year $11.3 (0.90) $8.2 8.2 $8.6 3.2 (0.05) 1.54 $1.1 1.1 42 (0.74) $80.8 48.4 30.2 17.5 16.6 14.1 8.2 2.2 5.3 1.3 7.5 $26.9 48.4 10.8 140 10.8 14.0 16.1 14.0 11.8 12.9 4.3 2.01 0.00 1.81 0.25 0.54 0.01 (0.49) (0.84) (0.55) (0.90) 0.75 563.8 44.6 22.3 14.6 14.0 132 4.7 $353 635 14.1 18.3 14.1 18.3 212 0.81 (0.30) 0.58 (0.21) (0.01) (0.28) (0.78) (0.82) (0.82) (0.89) (0.81) 3.4 18.3 27 1.8 1.1 155 16.9 5.6 $53.8 8.6 $229.1 77.6 46.7 22.9 15.0 5311.5 1012 48.9 29.8 16.8 132 10,1 13.6 6.7 7.6 5.8 5.1 3.8 6.4 8.6 8.4 7.5 8.2 8.2 59.1 16.1 21.5 12.9 20.4 4.3 15.1 9.7 10,8 18.3 19.4 14.0 5.4 4.3 140 8.6 5.4 4.80 10.76 (0.17) 0.85 (0.22) 0.02 (0.51) 2.17 (0.55) (0.22) (0.46) (0.72) (0.80) (0.54) 0.81 0.96 (0.46) (0.05) 0.53 11.7 11.4 10.2 6.4 6.1 4.9 44 3.5 2.6 14 1.2 1.1 1.1 1.1 570.5 11.3 77.6 21.2 28.2 16.9 26.8 56 19.7 12.7 14.1 240 25.4 18.3 7.1 5.6 18.3 113 7.1 2.25 5.87 (0.40) 0.08 (0.47) (0.31) (0.58) 0.80 (0.68) (0.52) (0.65) (0.821 (0.86) (0.86) (0.80) (0.78) (0.94) (0.90) (0.85) NG $145.5 92.5 78.1 712 36.3 19.7 15.0 10.7 7.8 7.8 9.2 $23.7 21.5 21.5 19.4 18.3 18.3 19.4 20.4 12.9 11.8 7.5 5.15 3.30 2.63 2.68 0.98 0.08 (0.22) (0.47) (0.39) (0.34) 0.22 $111.2 74.4 62.0 54,6 29.1 17.0 14.7 8.2 8.1 7.1 7.1 $310 282 20.2 25.4 24.0 240 25.4 26.8 16.9 15.5 2.58 1.64 120 1.15 0.21 (029) (0.42) (0.69) (052) (0.54) (0.28) 9.9 $27.7 $10.5 $41.4 $17.3 $16.1 $10.1 0.67 (0.02) 2.07 $21.6 $8.7 $31.5 5226 $212 513.3 $14.1 to (0.08) (0.54) 121 $6.9 10 $34.3 $10.8 to $20,4 (0.55) to 0.99 $ 3.4 to $29.1 $268 (0.82) to 0.21 PV of Net Inflows First Film PV of Negative Cost at Year 0 Hypothetical Sequel PV of PV of Negative Net Inflows Cost at One-Year Year 3 Return at Year 1 One-Year Return at Year $11.3 (0.90) $8.2 8.2 $8.6 3.2 (0.05) 1.54 $1.1 1.1 42 (0.74) $80.8 48.4 30.2 17.5 16.6 14.1 8.2 2.2 5.3 1.3 7.5 $26.9 48.4 10.8 140 10.8 14.0 16.1 14.0 11.8 12.9 4.3 2.01 0.00 1.81 0.25 0.54 0.01 (0.49) (0.84) (0.55) (0.90) 0.75 563.8 44.6 22.3 14.6 14.0 132 4.7 $353 635 14.1 18.3 14.1 18.3 212 0.81 (0.30) 0.58 (0.21) (0.01) (0.28) (0.78) (0.82) (0.82) (0.89) (0.81) 3.4 18.3 27 1.8 1.1 155 16.9 5.6 $53.8 8.6 $229.1 77.6 46.7 22.9 15.0 5311.5 1012 48.9 29.8 16.8 132 10,1 13.6 6.7 7.6 5.8 5.1 3.8 6.4 8.6 8.4 7.5 8.2 8.2 59.1 16.1 21.5 12.9 20.4 4.3 15.1 9.7 10,8 18.3 19.4 14.0 5.4 4.3 140 8.6 5.4 4.80 10.76 (0.17) 0.85 (0.22) 0.02 (0.51) 2.17 (0.55) (0.22) (0.46) (0.72) (0.80) (0.54) 0.81 0.96 (0.46) (0.05) 0.53 11.7 11.4 10.2 6.4 6.1 4.9 44 3.5 2.6 14 1.2 1.1 1.1 1.1 570.5 11.3 77.6 21.2 28.2 16.9 26.8 56 19.7 12.7 14.1 240 25.4 18.3 7.1 5.6 18.3 113 7.1 2.25 5.87 (0.40) 0.08 (0.47) (0.31) (0.58) 0.80 (0.68) (0.52) (0.65) (0.821 (0.86) (0.86) (0.80) (0.78) (0.94) (0.90) (0.85) NG $145.5 92.5 78.1 712 36.3 19.7 15.0 10.7 7.8 7.8 9.2 $23.7 21.5 21.5 19.4 18.3 18.3 19.4 20.4 12.9 11.8 7.5 5.15 3.30 2.63 2.68 0.98 0.08 (0.22) (0.47) (0.39) (0.34) 0.22 $111.2 74.4 62.0 54,6 29.1 17.0 14.7 8.2 8.1 7.1 7.1 $310 282 20.2 25.4 24.0 240 25.4 26.8 16.9 15.5 2.58 1.64 120 1.15 0.21 (029) (0.42) (0.69) (052) (0.54) (0.28) 9.9 $27.7 $10.5 $41.4 $17.3 $16.1 $10.1 0.67 (0.02) 2.07 $21.6 $8.7 $31.5 5226 $212 513.3 $14.1 to (0.08) (0.54) 121 $6.9 10 $34.3 $10.8 to $20,4 (0.55) to 0.99 $ 3.4 to $29.1 $268 (0.82) to 0.21