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Hong Kong Disneyland

Decent Essays

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 …show more content…

However the techniques would not take into account the risks fully. Risks like political risk, technical risk are not taken into account while estimating the future cash flows. Hence while the project evaluation techniques are instrumental in evaluating a project, there are still some aspects about the project which are not fully covered in these techniques.

5. How does the attractiveness of the project vary under different economic scenarios and financing arrangements?

Similar to the question number 2

6. Should the Government pay to lure Disney to Hong Kong? If so, at what price?

From the assessment of additional benefits by way of increased spending of tourists as well increased number of tourists, the economy is getting an additional HKD 540 billion from this venture. Apart from this there are employment opportunities that are created directly and indirectly.

Disney inturn is asking for free land as well as tax benefits in line with its earlier theme parks at Paris and Tokyo. Land premium to be charged by the Government is HKD 4 billion and the tax holiday for 10 years comes to HKD 363 million. Weighing the costs and benefits to the Government and economy as a whole, the Government can provide both the benefits asked by Disney. However due to the high political risk associated with providing free land, the Govt. can atleast provide tax breaks.

Hence it is advisable to the Government to lure Disney with the tax breaks the company has

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