Case scenario-planning new magic at disney

Question

Case Scenario: Planning New Magic At Disney

After its success domestically, the Walt Disney Company(Disney) decided to share its magic with the rest of theworld. After successfully opening Tokyo Disneyland, Disney was moving around the world to create EuroDisneyland. The financing plan for Euro Disneylandincluded an initial public offering by the main project firm. The financing plan would change Euro Disneylandfrom an internally financed, privately owned project intoa highly leveraged, publicly owned entity in whichDisney would hold only a minority interest. This tableprovides financial projections for the first five years ofoperations.

FINANCIAL PROJECTIONS FOR EURO DISNEYLAND

(MILLIONS OF EUROS)

YEAR                                             1          2          3          4          5

Revenues

Magic Kingdom^a                         €4,246    €4,657   €5,384   €5,853   €6,415

Second theme park                         0            0          0          0          3,128

Resort and property                     1,236     2,144     3,520     5,077     6,386

development

Total revenues                             5,482     6,801      8,904    10,930   15,929

Operating expenses

Magic Kingdom                             2,643     2,836      3,161     3,370     3,641

Second theme park                         0            0            0           0         1,794

Resort and property                       796       1,501      2,431     2,970     3,694

development

Total operating expenses              3,439      4,337      5,592      6,340      9,129

Operating income                         2,043      2,464      3,312      4,490      6,800

Other expenses (income)

Royalties                                       302         333        387        422          717

Preopening amortization                  341         341        341        341         341

Depreciation                                   255         263         290       296         625

Interest expense                             567         575         757       708        1,166

Interest and other income               (786)      (788)      (768)      (778)       (790)

Lease expense                                958         950         958         962         975

Management incentive fees                55         171         477         963        1,820

Total other expenses (income)         1,692      1,845      2,442      2,914      4,854

Profit before taxation                        351         619         870         1,676      1,946

Taxation                                          147         260         366         704         818

Net profit                                        €204       €359       €504       €972       €1,128

Includes the Magic Kingdom Hotel.
Source: Euro Disneyland S.C.A., Offer for Sale of 10,691,000 Shares, p. 36.

QUESTION:

Recalculate the value for Euro Disneyland estimated at time −3 for two cases in which the assumptions are changed to the following:

a. Revenues after year 5 grow at 6% and operating expenses grow at 5%.

b. Revenues after year 5 grow at 5% and operating expenses grow at 6%.