use Black and Scholes model to valuate the project

Black and Scholes: OC = [N(d1) x P0] - [N(d2) x EX.e-Rf.t]

P= PV of following on investment project's cash flow

EX = initial outlay to acquire the follow on project

t = time until the decision has to be made

v = volatillity of return

Rf = risk free

Follow-up rights to the 'first hit' rom-com series directors:

Oh-stop-it-you Production (OP) is a quite successful production house focusing on new rom- com (romantic comedy) mini-series produced by emerging young directors (under OP exclusive contracts). To emphasize on the new talents, OP constantly spins off rights to produce subsequent works by these first-hit-accomplished directors. In the beginning of 2022, OP is offering to sell the rights to produce subsequent works by a portfolio of 60 'first- hit-accomplished' directors (hits identified as generating at least $2,000,000 cash flow in total from streaming and such). The range of total cash flows generated by these 60 directors range from $2,010,000 to as high as $30,000,000 (few runaway hits - Think The Squid Game). OP sets the price to this exclusive right (on 60 directors bundled together) as 50 million dollars.

Catch-all Production Inc. (CP) is a bigger (and rather more diversified) production company that is considering OP's proposal. The financial manager of CP has gathered additional relevant information as follows:

It will take time to work on, evaluate, and produce rom-com series of this portfolio of 60 directors. On average, this will lead to the cash flows received at the end of 2024 (one single cash flow summarized as a lumpsum for simplification).

Out of the whole lot of 60 directors (one director is aimed for one rom-com series), however, it is estimated that only 90% will be able to produce anything worthy of production at the beginning of 2024. And of these workable projects, estimated net total cash flow (one cash flow to be received as per the above statement, in terms of timing) is $5,000,000 'per one rom-com series' on average. The discount rate used by content/series streaming industry is 10% per year.

For the above to happen, a decision needs to be made at the beginning of 2024. To be conservative, CP will secure a conditional offer from its suppliers/contractors so that it will cost altogether $291.6 million for CP to produce and market these rom-com series. The initial cost will incur at the beginning of 2024 ONLY IF CP decides to go forward with these rom- com series at that point in time (assuming 'All or Nothing' decision). Another assumption is that such initial outlay will incur all at once at the beginning of 2024 (for simplicity) if the decision is made to go forward with new productions.

Risk free rate is 4% per year.

Uncertainty in the content/series streaming industry is quite high. Variance in cash- flow/returns of these 60 directors as recorded by OP was 40%. CP believes that such estimation will also be valid for valuation purpose.

Answer the following questions:

Calculate the value of rights to publish followed-up rom-com series offered by OP