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 Kingdoma €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
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%.