#### Question Details

How to answer this question please see attachment.

Thanks,

E. Solution Legend

= Value given in problem

= Formula/Calculation/Analysis required

= Qualitative analysis or Short answer required The following information is for pedagogical purposes only and unlike earlier questions does not deal with real situation.

There are rumors that Netflix is negotiating a three year agreement with Pivotal, according to which Netflix will have a right to

use Please provide as many details as possible in your explanations and support them by numbers. Hint: think about this as a

series of options. Also you might find the following option pricing formulas useful (r is the risk-free rate, p is the risk-neutral

probability, Cn is the option payoff in node n) Part E Risk-neutral probability formula Given

AWS current price (in $ millions)

Price increase (%), u

Price decrease (%), d

Risk free Interest rate, r

Spinnaker's Price (in $ millions) $ $ 400.00

20%

-10%

3%

450.00 Option values formulas with1 period C0 r pC 1 pCd tree

e

u exp( rt ) S d

exp rt (1 d )

p Su Sd

u d with3 period C0 3r

tree

e Risk-neutral probability

One-period discount factor (exp(-risk free rate))

Solution

Today Year One Year Two

1 Year Three

2 Option 2 3

$691.2

$450.0 Attention - this is not a binomial option tree!!!

Option 1 $576.0

$450.0

$480.0

$450.0 AWS Price

Spinnaker Price

Price Netflix pays

Advantage over AWS

Product used $518.4

$450.0 $400

$450 $432.0

$450.0

$360.0

$450.0 $388.8

$450.0

$324.0

$450.0 Value of option 1 (year 1)

Value of option 2 (year 2)

Value of option 3 (year 3)

Total value $291.6

$450.0 Option 3 Your recommendation p C with 2 period C0 2r p2Cuu 2p1 pCud 1 p Cdd

tree

e

3 uuu 2 3p2 1 pCuud 3p1 p Cudd 1 p Cddd

2 3 The terminal period growth rates were estimated such that the intrinsic valuation of the firm's equity would equal the current

market capitalization of the firm using the "Goal Seek" function.

**Solution details:**

Answered

QUALITY

Approved

ANSWER RATING

This question was answered on: * Sep 13, 2020 *

* * Solution~00021147597312.docx (25.37 KB)

##### Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .

#### About this Question

STATUSAnswered

QUALITYApproved

DATE ANSWEREDSep 13, 2020

EXPERTTutor

ANSWER RATING

#### GET INSTANT HELP/h4>

We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

- As a reference for in-depth understanding of the subject.
- As a source of ideas / reasoning for your own research (if properly referenced)
- For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).

#### NEW ASSIGNMENT HELP?

### Order New Solution. Quick Turnaround

Click on the button below in order to Order for a New, Original and High-Quality Essay Solutions.
New orders are original solutions *and precise to your writing instruction requirements. Place a New Order using the button below.*

WE GUARANTEE, THAT YOUR PAPER WILL BE WRITTEN FROM SCRATCH AND WITHIN A DEADLINE.