Louisiana State University, Shreveport FIN FIN 701 Do you agree with the Amazon buying MGM discussion below? 1. How…
How does option value factor into this decision to acquire MGM?
Amazon financial managers will likely look into all opportunity costs when determining whether to bid on MGM. These costs will likely include factors such as the long term or future value of MGM products, if their Net Present Value is greater than zero, or if their capital could be used in better ways, such as expanding their delivery services, etc. If any of these opportunity costs are of a greater value than buying MGM, then their importance should be ranked accordingly. However, since MGM is a one-of-a-kind company, the financial managers need to take in account the value of losing this product to other streaming businesses such as Netflix. With Netflix and Disney Plus expanding their streaming libraries at considerable rates, Amazon needs to stay competitive in order to keep it’s current customers interested, let alone acquire new customers.
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