United Studios holds the movie rights for a national best-seller, and as part of these rights also has the option to produce a sequel based on the same book. The studio is now in the process of developing the production schedule. It believes that shooting both movies simultaneously would allow significant cost savings, and both movies could be produced for a total budget of $520 million. If instead the movies are produced sequentially, the total expected cost will rise to 5570 million. On the other hand, by waiting to produce the second movie until after the first movie is released, the studio will have much better information regarding the likely prospects for the sequel Let's see how we can use a decision tree to analyze this situation. In the case in which the movies are produced simultaneously, the studio forecasts it will com a total of $650 million from both movies, for a net profit of $130 million While United's expected earnings imply that the movies are worth producing, there is significant uncertainly regarding the actual outcome in fact, the expected total revenue of $850 million for both movies reflects two aromative outcomes. Based on the popularity of the book, United believes there is a 50% chance the first movie will be a blockbuster success, in which case the studio expects it will eam 5500 million from it alone, and another million for the sequel. If instead the first film is just a moderate hit, it will only bring in $285 milion, and the sequel wil only be expected to earn $100 millon. Suppone United has the rights to produce the first film, but has not yet purchased the sequel rights a. How much are the sequel rights worth to United? Assume that the cost of the sequel is $295 million b. Supporo United can purchase the sequel rights now for $2.5 milion. Alternatively, United can pay $10 million now for the option to buy the sequel rights for $25 million in the future. Which should it choose? .. How much are the sequel rights worth to United? Assume that the cost of the sequel is $205 million (Select all the choices that apply) DA Without righto, expected profit from the first film is only 5600 million-$295 milion $20 million 8. Without rights, expected profit from the first film is only $307,5 milion-$295 milion=$102.5 million DC Sequel rights add $51 million United's expected payoff D. Sequel rights add $103 million to United's expected payoff United Studios holds the movie rights for a national best-seller, and as part of these rights also has the option to produce a sequel based on the same book. The studio is now in the process of developing the production schedule. It believes that shooting both movies simultaneously would allow significant cost savings, and both movies could be produced for a total budget of $520 million. If instead the movies are produced sequentially, the total expected cost will rise to 5570 million. On the other hand, by waiting to produce the second movie until after the first movie is released, the studio will have much better information regarding the likely prospects for the sequel Let's see how we can use a decision tree to analyze this situation. In the case in which the movies are produced simultaneously, the studio forecasts it will com a total of $650 million from both movies, for a net profit of $130 million While United's expected earnings imply that the movies are worth producing, there is significant uncertainly regarding the actual outcome in fact, the expected total revenue of $850 million for both movies reflects two aromative outcomes. Based on the popularity of the book, United believes there is a 50% chance the first movie will be a blockbuster success, in which case the studio expects it will eam 5500 million from it alone, and another million for the sequel. If instead the first film is just a moderate hit, it will only bring in $285 milion, and the sequel wil only be expected to earn $100 millon. Suppone United has the rights to produce the first film, but has not yet purchased the sequel rights a. How much are the sequel rights worth to United? Assume that the cost of the sequel is $295 million b. Supporo United can purchase the sequel rights now for $2.5 milion. Alternatively, United can pay $10 million now for the option to buy the sequel rights for $25 million in the future. Which should it choose? .. How much are the sequel rights worth to United? Assume that the cost of the sequel is $205 million (Select all the choices that apply) DA Without righto, expected profit from the first film is only 5600 million-$295 milion $20 million 8. Without rights, expected profit from the first film is only $307,5 milion-$295 milion=$102.5 million DC Sequel rights add $51 million United's expected payoff D. Sequel rights add $103 million to United's expected payoff