1. How would you value the Hong Kong Disneyland project from the perspective of Walt Disney?
The valuation of Hong Kong Disneyland from the perspective of Walt Disney is done by taking the following assumptions:
Cost of Capital = 9.52%
Cost of Government Debt = 8.19%
Cost of Commercial Bank Debt = 11.36%
Cost of Equity = 12.3% (10 year average)
Inflation = 7.31% (10 year average)
Gross margin = 37%
Operating Cost = 22%
Variable Management Fee = 5%
With the above assumptions the FCF of the project and the Royalties that Walt Disney would get were calculated by projecting the Cash Flows till 25 years.
The NPV of the project was found to be HKD1774million and the revenues to Walt Disney are HKD3834.51million.
2. How much does the attractiveness of the project vary according to different economic scenarios and financing arrangements?
Inflation Operating Costs
0.06 0.10 0.15 0.18 0.22
2.80 4261.05 2495.64 288.88 -1035.18 -2800.59
5.00 7269.95 5127.44 2449.30 842.41 -1300.10
7.31 11373.07 8716.44 5395.65 3403.18 746.55
10.00 17788.94 14328.58 10003.12 7407.85 3947.48
On performing the Scenario analysis by taking various Operating costs ranging from 6% (Oriental Land level) to 22% (Euro Disney level) and ...