ANSWER QUESTION 2

ANSWER TO QUESTION 1

MINICASE PLANNING NEw MAGIC AT DISNEY After its success domestically, the Walt Disney Company firm. The financing plan would change Euro Disneyland (Disney) decided to share its magic with the rest of the from an internally financed, privately owned project into world. After successfully opening Tokyo Disneyland, a highly leveraged, publicly owned entity in which Disney was moving around the world to create Euro Disney would hold only a minority interest. This table Disneyland. The financing plan for Euro Disneyland provides financial projections for the first five years of included an initial public offering by the main project operations. FINANCIAL PROJECTIONS FOR EURO DISNEYLAND (MILLIONS OF EUROS) 1 2 3 YEAR 5 4,246 0 | 1,236 4,657 0 2,144 5,384 0 3,520 5,853 0 5,077 6,415 3,128 6,386 5,482 6,801 8,904 10,930 15,929 Revenues Magic Kingdom Second theme park Resort and property development Total revenues Operating expenses Magic Kingdom Second theme park Resort and property development Total operating expenses Operating income 3,161 2,643 0 796 2,836 0 1,501 3,370 0 2,970 3,641 1,794 3,694 2,431 3,439 2,043 4,337 2,464 5,592 3,312 6,340 4,490 9,129 6,800 Other expenses (income) Royalties Preopening amortization Depreciation Interest expense Interest and other income Lease expense Management incentive fees Total other expenses (income) Profit before taxation Taxation Net profit 302 341 255 567 (786) 958 55 1,692 351 147 204 333 341 263 575 (788) 950 171 1,845 619 260 352 387 341 290 757 (768) 958 477 2,442 870 366 504 422 341 296 708 (778) 962 963 2,914 1,676 704 972 717 341 625 1,166 (790) 975 1,820 4,854 1,946 818 1,128 "Includes the Magic Kingdom Hotel Source: Euro Disneyland S.CA.Offer for Sale of 10,691,000 Shares, p. 36. QUESTIONS Euro Disneyland's income tax rate is 42%. 1. Using the format of the table as a guide, project the net 2. Calculate the present value of Euro Disneyland's profit for the following 20 years (years 6 to 25) based equity at time 0 (when the park opens) and at time - 3 on the following assumptions: (the time of the initial public offering, three years Each class of revenue after year 5 grows at a 5% before the opening). Use the following assumptions: annual rate. Dividends are 75% of net profit for years 1 to 25. Each class of operating expenses after year 5 grows At the end of year 25, the terminal value of equity is at a 5% annual rate. worth 10 times the year's net profit. In other expenses (income), royalties equal 5% of Euro Disneyland's cost of equity capital is 15%. total revenues. 3. Recalculate the value for Euro Disneyland estimated at In other expenses (income), preopening amortiza- time-3 for two cases in which the assumptions are tion is zero after year 5. changed to the following: Annual depreciation, annual interest expense, a. Revenues after year 5 grow at 6% and operating annual interest and other income, and annual lease expenses grow at 5%. expense are constant after year 5. b. Revenues after year 5 grow at 5% and operating Management incentive fees grow at a 7.5% annual rate. expenses grow at 6%. Net profit Base 9 10 11 12 14 25 Magic Kingdom Decond theme park and Property Operating Expenses Magic Kingdom Second theme park 3 Resort and Property Development Total Operating Expenses 6 Operating Income 7492 8679 18 Other Expenses (Income) 19 Royalties 20 Preopening Amortisation Depreciation 22 Interest Expenses Interest and other Income Lease Expenses Management Incentive Fes sincome) slipcomel 26 Total other Profit Before taxation Show Formulas (Ctr") Display the formula in each cell instead of the resulting value Base 5 G -32-1 =C241 -F2+1 Press F1 for more help. H21 6415 3128 6386 SUM(B4:86) -549105 -851 05 -869105 SUMICA:06) C4 1.05 -CS 1.05 -C5 1.05 SUMID4:06) -05*1.05 -06 1.05 SUMI4:06) E5105 E6*1.05 SUMF416 -44*1.05 -F5105 -F6*1.05 SUMG4:56) -G4105 -G5105 -G6 1.05 SUMMHG H4910 -HS105 LOS SUM. 41.05 59105 169105 SUM J61 3641 1794 3694 -SUMB11:313) -B11105 B121.05 -81391.05 --SUMC11:013) -C11"1.05 C121.05 -C131.05 SUMD11:013) 2011'1.05 -D121.05 -0131.05 SUM|E11E13) -E11'105 -E12105 -E13105 SUMF11F13) -F11"1.05 -F12 105 -F131.05 SUMG11:13) 11'1.05 -6129105 -613105 SUMH3 H11"105 121.05 -H13105 -SUM111.13 -11LOS 121 05 -13105 SUMUR J11 124 113" SUM 1 2 3 Revenue 4 Magic Kingdom 5 Second theme park 6 Resort and Property Development 7 Total Revenues 8 8 9 Operating Expenses 10 11 Magic Kingdom 12 Second theme park 13 Resort and Property Development 14 Total Operating Expenses 15 16 Operating Income 17 18 Other Expenses (Income) 19 Royalties 20 Preopening Amortisation 21 Depreciation 22 Interest Expenses 23 Interest and other Income 24 Lease Expenses 25 Management Incentive Fees 26 Total other expenses (income) 27 28 Profit Before taxation 29 Taxation 30 Net profit -87-814 -C7-C14 -07-014 -E7-E14 -F7-F14 -G7-614 -H7-H14 -17-14 -02-14 717 341 625 1166 -790 975 1820 SUMB19:325) -C7'5N 0 58521 --$B$22 -58523 -58524 -B25*1.075 SUMC19.025) -07'5 0 -58521 -58$22 -S8$ 23 SBS24 -C2591075 SUMD19 025) E75% 0 -58521 $B$22 -$B$23 $B$24 -0251.075 SUME 19:25) -F7SN 0 $B$21 -S$22 58523 $B$24 -E251.075 SUM[F19:F25) -G7*5 0 $0$21 56522 -5B523 =58524 -F25*1.075 SUM|619625) H75 0 S8521 -58522 -58523 58524 -0251.075 SUMH19 H25) 0 R$ 21 S522 $8523 $$24 H25*1075 SUM:119:1051 0 S521 25852 58523 S8524 25*1.075 SUMU 1925) 27 0 585 55 SSS $85 25 -17-14-26 14.126 -B7-314-826 818 -823-829 -C7-C14-C26 -C28*429 -C28-029 -07-014-026 028942 -D28-029 -E7-E14-E26 -E28'42N -E25-E29 -F7-F14-F26 -F289429 -F28-F29 -G7-614-626 -6254255 28-029 -H7--1425 20*42 H23-H29 08 Defined Names Remove Ano Net profit M wa valute For Window Format Audio Calon Med N -K21 - 2+1 -M21 N21 02.1 -P21 -02-1 -K4 1.05 5 05 -K6*1.05 SUM(4:16) R21 4105 -5 1.05 -L6105 SUMMA:M6) -M4105 M51.05 M61 05 SUM(NA:NG) -12-1 N41.05 -N5 1.05 -N6 1.05 SUM(04:06) 041 OS -051 OS 06 1.05 SUMI4:26) -P4105 -PS 1.05 -P6105 SUM(4:06) 04105 -051.05 -06*1.05 SUMERAR) 1410 R4105 -AS105 -R69105 SUMSANGI 5591 05 15105 04105 -US1.05 -U6105 SUMA 1 2 2+1 3 4 41.05 551.05 6 J61.05 7 SUMIKA:K6) 8 9 10 11 J111.05 12-12 1.05 3 J131.05 4 SUM(K11:K13) 5 6 K7-K14 7 3 -K75% 10 SBS21 -SB$22 -SB$23 $B$24 -J25 1.075 SUM(K19:K25) -K111.05 -K121.05 -K13105 SUM(L11:13) -L111.05 -L121.05 -4131.05 -SUM(M11.M13) -M111.05 M12105 M131.05 SUM(N11:N13) N111.05 N121.05 -N131 05 SUM(011:013) -0111.05 -012105 -0131.05 SUM(P11:P13) -P111.05 P121.05 -P13105 SUMQ11:013) -0119105 -0121.05 0131.05 SUMR11:13) -R111.05 -R121.05 -R131.05 SUM11:51 -5111.05 5121 05 -$131.05 SUMT11:23 -111105 -7121 05 --7-L14 -M7-M14 01110 -12-10 LOS UMVUVI -N7-N14 -07-014 -P7-P14 SUM1101 -07-014 R7-R14 57-514 T-14 -UULA VV14 -L75% 0 =SB$21 $ -SBS22 -SB$23 -SB$24 -K25*1.075 -SUM/L 19:L25) -M75% o -SB$21 -SB$22 SB523 =$B$24 L251.075 SUMM19 M25) -N75% 0 SB$21 -SB$22 -SB$23 -SBS24 -M25*1.075 -SUM(N19:N25) -07'5 o SB$21 =SBS22 -SBS 23 -SB$24 -N25*1.075 SUMO19:025) -P7.5 0 58$21 SB$22 -S8$23 SBS24 -025"1.075 -SUM[P19:P25) -975 0 SB$21 =SB$22 $B$23 $B$24 -P25 1.075 -SUMQ19:025) R7'S 0 S6$ 21 -S8522 -58523 SB$24 -025 1075 SUM[R19 R25) -58521 S8522 -S8523 -S8524 R251075 SUM[519 525) 0 -58521 Sa$22 S8523 S8524 5251075 SUMT19:25 0 S8521 S8522 $1$23 50524 -125 1075 GUMU19 0251 Ledasa 0522 $123 58534 -25 1.075 GUMVI =K7-K14-K26 -K28*42% K28-29 -L7--14-L26 L28'42% L28-L29 M7-M14-M26 -M2894296 -M28-M29 -N7-N14-N26 -N28*4246 -N28-N29 -07-014-026 -028*42% -028-029 -57-514526 -P7-P14-P26 -P2842% -P28-P29 -07-014-026 -Q28429 -028-029 UT-01-26 R7-R14 R26 R289429 R28-R29 14-15 17-114725 T2342 128-129 523 529 -UU MINICASE PLANNING NEw MAGIC AT DISNEY After its success domestically, the Walt Disney Company firm. The financing plan would change Euro Disneyland (Disney) decided to share its magic with the rest of the from an internally financed, privately owned project into world. After successfully opening Tokyo Disneyland, a highly leveraged, publicly owned entity in which Disney was moving around the world to create Euro Disney would hold only a minority interest. This table Disneyland. The financing plan for Euro Disneyland provides financial projections for the first five years of included an initial public offering by the main project operations. FINANCIAL PROJECTIONS FOR EURO DISNEYLAND (MILLIONS OF EUROS) 1 2 3 YEAR 5 4,246 0 | 1,236 4,657 0 2,144 5,384 0 3,520 5,853 0 5,077 6,415 3,128 6,386 5,482 6,801 8,904 10,930 15,929 Revenues Magic Kingdom Second theme park Resort and property development Total revenues Operating expenses Magic Kingdom Second theme park Resort and property development Total operating expenses Operating income 3,161 2,643 0 796 2,836 0 1,501 3,370 0 2,970 3,641 1,794 3,694 2,431 3,439 2,043 4,337 2,464 5,592 3,312 6,340 4,490 9,129 6,800 Other expenses (income) Royalties Preopening amortization Depreciation Interest expense Interest and other income Lease expense Management incentive fees Total other expenses (income) Profit before taxation Taxation Net profit 302 341 255 567 (786) 958 55 1,692 351 147 204 333 341 263 575 (788) 950 171 1,845 619 260 352 387 341 290 757 (768) 958 477 2,442 870 366 504 422 341 296 708 (778) 962 963 2,914 1,676 704 972 717 341 625 1,166 (790) 975 1,820 4,854 1,946 818 1,128 "Includes the Magic Kingdom Hotel Source: Euro Disneyland S.CA.Offer for Sale of 10,691,000 Shares, p. 36. QUESTIONS Euro Disneyland's income tax rate is 42%. 1. Using the format of the table as a guide, project the net 2. Calculate the present value of Euro Disneyland's profit for the following 20 years (years 6 to 25) based equity at time 0 (when the park opens) and at time - 3 on the following assumptions: (the time of the initial public offering, three years Each class of revenue after year 5 grows at a 5% before the opening). Use the following assumptions: annual rate. Dividends are 75% of net profit for years 1 to 25. Each class of operating expenses after year 5 grows At the end of year 25, the terminal value of equity is at a 5% annual rate. worth 10 times the year's net profit. In other expenses (income), royalties equal 5% of Euro Disneyland's cost of equity capital is 15%. total revenues. 3. Recalculate the value for Euro Disneyland estimated at In other expenses (income), preopening amortiza- time-3 for two cases in which the assumptions are tion is zero after year 5. changed to the following: Annual depreciation, annual interest expense, a. Revenues after year 5 grow at 6% and operating annual interest and other income, and annual lease expenses grow at 5%. expense are constant after year 5. b. Revenues after year 5 grow at 5% and operating Management incentive fees grow at a 7.5% annual rate. expenses grow at 6%. Net profit Base 9 10 11 12 14 25 Magic Kingdom Decond theme park and Property Operating Expenses Magic Kingdom Second theme park 3 Resort and Property Development Total Operating Expenses 6 Operating Income 7492 8679 18 Other Expenses (Income) 19 Royalties 20 Preopening Amortisation Depreciation 22 Interest Expenses Interest and other Income Lease Expenses Management Incentive Fes sincome) slipcomel 26 Total other Profit Before taxation Show Formulas (Ctr") Display the formula in each cell instead of the resulting value Base 5 G -32-1 =C241 -F2+1 Press F1 for more help. H21 6415 3128 6386 SUM(B4:86) -549105 -851 05 -869105 SUMICA:06) C4 1.05 -CS 1.05 -C5 1.05 SUMID4:06) -05*1.05 -06 1.05 SUMI4:06) E5105 E6*1.05 SUMF416 -44*1.05 -F5105 -F6*1.05 SUMG4:56) -G4105 -G5105 -G6 1.05 SUMMHG H4910 -HS105 LOS SUM. 41.05 59105 169105 SUM J61 3641 1794 3694 -SUMB11:313) -B11105 B121.05 -81391.05 --SUMC11:013) -C11"1.05 C121.05 -C131.05 SUMD11:013) 2011'1.05 -D121.05 -0131.05 SUM|E11E13) -E11'105 -E12105 -E13105 SUMF11F13) -F11"1.05 -F12 105 -F131.05 SUMG11:13) 11'1.05 -6129105 -613105 SUMH3 H11"105 121.05 -H13105 -SUM111.13 -11LOS 121 05 -13105 SUMUR J11 124 113" SUM 1 2 3 Revenue 4 Magic Kingdom 5 Second theme park 6 Resort and Property Development 7 Total Revenues 8 8 9 Operating Expenses 10 11 Magic Kingdom 12 Second theme park 13 Resort and Property Development 14 Total Operating Expenses 15 16 Operating Income 17 18 Other Expenses (Income) 19 Royalties 20 Preopening Amortisation 21 Depreciation 22 Interest Expenses 23 Interest and other Income 24 Lease Expenses 25 Management Incentive Fees 26 Total other expenses (income) 27 28 Profit Before taxation 29 Taxation 30 Net profit -87-814 -C7-C14 -07-014 -E7-E14 -F7-F14 -G7-614 -H7-H14 -17-14 -02-14 717 341 625 1166 -790 975 1820 SUMB19:325) -C7'5N 0 58521 --$B$22 -58523 -58524 -B25*1.075 SUMC19.025) -07'5 0 -58521 -58$22 -S8$ 23 SBS24 -C2591075 SUMD19 025) E75% 0 -58521 $B$22 -$B$23 $B$24 -0251.075 SUME 19:25) -F7SN 0 $B$21 -S$22 58523 $B$24 -E251.075 SUM[F19:F25) -G7*5 0 $0$21 56522 -5B523 =58524 -F25*1.075 SUM|619625) H75 0 S8521 -58522 -58523 58524 -0251.075 SUMH19 H25) 0 R$ 21 S522 $8523 $$24 H25*1075 SUM:119:1051 0 S521 25852 58523 S8524 25*1.075 SUMU 1925) 27 0 585 55 SSS $85 25 -17-14-26 14.126 -B7-314-826 818 -823-829 -C7-C14-C26 -C28*429 -C28-029 -07-014-026 028942 -D28-029 -E7-E14-E26 -E28'42N -E25-E29 -F7-F14-F26 -F289429 -F28-F29 -G7-614-626 -6254255 28-029 -H7--1425 20*42 H23-H29 08 Defined Names Remove Ano Net profit M wa valute For Window Format Audio Calon Med N -K21 - 2+1 -M21 N21 02.1 -P21 -02-1 -K4 1.05 5 05 -K6*1.05 SUM(4:16) R21 4105 -5 1.05 -L6105 SUMMA:M6) -M4105 M51.05 M61 05 SUM(NA:NG) -12-1 N41.05 -N5 1.05 -N6 1.05 SUM(04:06) 041 OS -051 OS 06 1.05 SUMI4:26) -P4105 -PS 1.05 -P6105 SUM(4:06) 04105 -051.05 -06*1.05 SUMERAR) 1410 R4105 -AS105 -R69105 SUMSANGI 5591 05 15105 04105 -US1.05 -U6105 SUMA 1 2 2+1 3 4 41.05 551.05 6 J61.05 7 SUMIKA:K6) 8 9 10 11 J111.05 12-12 1.05 3 J131.05 4 SUM(K11:K13) 5 6 K7-K14 7 3 -K75% 10 SBS21 -SB$22 -SB$23 $B$24 -J25 1.075 SUM(K19:K25) -K111.05 -K121.05 -K13105 SUM(L11:13) -L111.05 -L121.05 -4131.05 -SUM(M11.M13) -M111.05 M12105 M131.05 SUM(N11:N13) N111.05 N121.05 -N131 05 SUM(011:013) -0111.05 -012105 -0131.05 SUM(P11:P13) -P111.05 P121.05 -P13105 SUMQ11:013) -0119105 -0121.05 0131.05 SUMR11:13) -R111.05 -R121.05 -R131.05 SUM11:51 -5111.05 5121 05 -$131.05 SUMT11:23 -111105 -7121 05 --7-L14 -M7-M14 01110 -12-10 LOS UMVUVI -N7-N14 -07-014 -P7-P14 SUM1101 -07-014 R7-R14 57-514 T-14 -UULA VV14 -L75% 0 =SB$21 $ -SBS22 -SB$23 -SB$24 -K25*1.075 -SUM/L 19:L25) -M75% o -SB$21 -SB$22 SB523 =$B$24 L251.075 SUMM19 M25) -N75% 0 SB$21 -SB$22 -SB$23 -SBS24 -M25*1.075 -SUM(N19:N25) -07'5 o SB$21 =SBS22 -SBS 23 -SB$24 -N25*1.075 SUMO19:025) -P7.5 0 58$21 SB$22 -S8$23 SBS24 -025"1.075 -SUM[P19:P25) -975 0 SB$21 =SB$22 $B$23 $B$24 -P25 1.075 -SUMQ19:025) R7'S 0 S6$ 21 -S8522 -58523 SB$24 -025 1075 SUM[R19 R25) -58521 S8522 -S8523 -S8524 R251075 SUM[519 525) 0 -58521 Sa$22 S8523 S8524 5251075 SUMT19:25 0 S8521 S8522 $1$23 50524 -125 1075 GUMU19 0251 Ledasa 0522 $123 58534 -25 1.075 GUMVI =K7-K14-K26 -K28*42% K28-29 -L7--14-L26 L28'42% L28-L29 M7-M14-M26 -M2894296 -M28-M29 -N7-N14-N26 -N28*4246 -N28-N29 -07-014-026 -028*42% -028-029 -57-514526 -P7-P14-P26 -P2842% -P28-P29 -07-014-026 -Q28429 -028-029 UT-01-26 R7-R14 R26 R289429 R28-R29 14-15 17-114725 T2342 128-129 523 529 -UU