Case Study

On

Tokyo Disneyland and the DisneySea Park:

Corporate Governance and Differences in Capital
Budgeting Concept and Methods Between American
and Japanese Companies

iii
 Table of Contents

Title Page no
Letter of Transmittal I
Acknowledgement II
Executive Summary III
CHAPTER- 01
Introduction and Analysis of The Economy, Industry & Company
Introduction 01
Objective of the Study 02
Limitations of the Case Analysis 02
Methodology of the Study 03
Analysis of Japan’s Economy 03
Industry Analysis 07
Porter’s Five Factors Analysis 11
SWOT Analysis 13
Ratio Analysis 14
DuPont Analysis 16
Strategy Analysis 17
CHAPTER- 02
Case Synopsis
Overview of The Case 20
CHAPTER- 03
Country Risk Analysis
Country Risk Management 24
CHAPTER- 04
Analysis of Project & Conclusion
Forecasting up to 2004 31
Forecasting up to 20016 33
Conclusion 41
Appendix 42

iv
 Chapter- 1

Introduction and Analysis of

The Economy, Industry &
Company

1
Introduction
Investment decision otherwise known as capital budgeting decision is perhaps the
most important decision taken by a Finance Manager. Whatever is the objective of the
firm, whether profit maximization or wealth maximization, capital budgeting
decision affects performance of the firm decisively. An under investment will result in
inefficient operations like inadequate capacity and, increased expenditure,
noncompetitive production and pricing resulting in poor market share and have
serious financial implications. On the other hand, an over investment would result in
higher depreciation and increased operating costs and result in liquidity crisis. So, the
significance of a capital expenditure decision is very crucial to a financial manager.

The report intends to relate the techniques and concepts learned throughout the
“Capital Investment Decision” course and includes a case analysis of the problem
titled” Tokyo Disneyland and the DisneySea Park: Corporate Governance and
Differences in Capital Budgeting Concept and Methods Between American and
Japanese Companies”.

Objective of the Case Study

a) General objective:

The study's primary goal is to relate the capital investment analysis tools and concepts acquired
throughout the "Capital Investment Decision" course to gain a deeper understanding of the
capital investment decisions and the factors that surround it by solving the assigned case.

b) Specific objective:

▪ To analyze the internal and external factors of the economies involved and the industry.

▪ To identify and analyze the problem and make some recommendations.

▪ To make the financial projections the new project “DisneySea Park”

▪ To analyze the financial aspects of the new project “DisneySea Park”.

▪ To determine and explore alternative courses of action.

Limitations of the Case Analysis

The main limitations in the preparation of the report are:
▪ The study's main constraint was information insufficiency, which was needed for better
analysis.

2
 ▪ Some of the aspects could not be discussed in the present report due to lack of information
and time limitations.

Methodology of the Study

▪ Qualitative and quantitative analyses were made.

▪ Some essential data that are not provided were assumed

▪ The quantitative and qualitative information used in this report was collected from the
provided case file.

▪ Some reliable computer software has been used to make the financial estimates to make
the analysis viable and credible.

Analysis of Japan’s Economy

Japan has a large industrial capacity, and is home to some of the largest and most
technologically advanced producers of motor vehicles, electronics, machine tools, steel
and nonferrous metals, ships, chemical substances, textiles, and processed foods.
Agricultural businesses in Japan cultivate 13 percent of Japan's land, and Japan accounts
for nearly 15 percent of the global fish catch, second only to China. As of 2010, Japan's
labor force consisted of some 65.9 million workers. Japan has a low unemployment rate
of around four percent. Almost one in six Japanese, or 20 million people, lived in
poverty in 2007.Japan is characterized by limited land supply in urban areas.

GDP
The growth rate of GDP measures the rapid growth of the economy. It does this by
comparing the gross domestic product of one quarter of the country with the previous
quarter. GDP measures a nation's economic performance.

GDP growth rate is low in Japan. Sometimes it was negative. The GDP growth rate from
the year 1993 to 1997 are given below:

Year GDP
1993 0.44%
1994 0.12%
1995 -0.55%
1996 -0.63%
1997 0.53%

3
 GDP
0.60%

0.40%

0.20%

0.00%
1993 1994 1995 1996 1997
-0.20%

-0.40%

-0.60%

-0.80%

The real GDP growth rate from the year 1993 to 2016 are given below:

DATE VALUE
2018 1.1
2017 1.7
2016 1
2015 1.4
2014 0.4
2013 2
2012 1.5
2011 -0.1
2010 4.2
2009 -5.4
2008 -1.1
2007 1.7
2006 1.4
2005 1.7
2004 2.2
2003 1.5
2002 0.1
2001 0.4
2000 2.8
1999 -0.3
1998 -1.1
1997 1.1
1996 3.1
1995 2.7

4
 1994 1
1993 -0.5

Inflation Rate
Inflation refers to an overall increase in the Consumer Price Index (CPI), which for different goods is a
weighted average of prices. The set of goods that make up the index depends on which a common
consumer basket is considered representative. Annual inflation refers to the percentage change in the
CPI compared to the previous year's same month.

Inflation rate is very low in Japan. From the year 1993 to 1995, inflation rate declined. Then in the year
1996 the rate started to climb up and it was 1.77% in 1997.

Year Value (%)

2016 -0.10
2015 0.80
2014 2.80
2013 0.30
2012 -0.10
2011 -0.30
2010 -0.70
2009 -1.30
2008 1.40
2007 0.10
2006 0.30
2005 -0.30
2004 0.00
2003 -0.30
2002 -0.90
2001 -0.70
2000 -0.70
1999 -0.30
1998 0.70
1997 1.77
1996 0.13
1995 -0.12
1994 0.69
1993 1.27

5
Unemployment Rate
Unemployment rate can be defined by the national definition and the ILO harmonized
definition, or the OECD harmonized definition. "Unemployed workers" are, as defined
by the International Labor Organization, those who are not currently working but who
are willing and able to work for pay, who are currently available for work and who
have actively searched for work.

The unemployment rate is defined as the percentage of unemployed workers in the

total workforce. Workers are considered unemployed if, despite being able to do so and
willing to do so, they do not currently work. The total workforce is made up of all
employed and unemployed people in an economy. Japan’s unemployment rate for the
years between 1993 and 2016 are given below-

DATE VALUE
2017 2.9
2016 3.1
2015 3.4
2014 3.6
2013 4
2012 4.3
2011 4.6
2010 5.1
2009 5.1
2008 4
2007 3.8
2006 4.1
2005 4.4
2004 4.7
2003 5.2
2002 5.4
2001 5
2000 4.7
1999 4.7
1998 4.1
1997 3.2
1996 3.4
1995 3.4
1994 2.9
1993 2.5

6
Life Style
The people of Japan are living a very luxurious life. Since the income per capita is very
high, they can spend a lot of money on living a better life. Japan's unemployment rate
is very low. Most people are educated. People don't mind doing any kind of work. They
love having fun and are very active people. So, they're going on a long drive and park
theme. They have different places for a family tour.

Industry Analysis

PESTEL Analysis
PESTEL Analysis is a strategic management tool which can be used to assess the external factors
affecting the case of DisneySea Park. PESTEL stands for –political, social, economic, technological,
environmental and legal factors affecting the organization's macro environment.

P E
Economic
Political

T
S
Techno-
Social
logical

E L
Environme
Legal
ntal

Political Factors
Political factors are almost always linked to the level of intervention in the economic
and financial environment and the nature of local and national government
intervention. Governmental policies and the governance system play an enormous role
in the policy's nature and objectives.

▪ Governance System – The current system of governance in the industry is dealing

with problems and Tokyo DisneySea requires to keep a close eye on the policy
changes specified in the case study.
▪ Taxation policies – Over the last two decades Tokyo DisneySea has benefitted from
lower taxation policies throughout the western hemisphere. It has resulted in high

7
 profits and increasing spending in the research and development. In the second half
Mitsuru Misawa believe that it can change
▪ Importance of local governments in Finance & Accounting – Local administration
plays an influential role in regulating the sector's policy and business environment.
Tokyo DisneySea should monitor these changes closely and should lobby them.
▪ Changing policies with new government – After reading Tokyo Disneyland and
DisneySea Park case, we can end up making an inference that a transition of
government can take place in the near future on most prominent markets. Tokyo
DisneySea must prepare for this eventuality because it can lead to a change in the
sector's priorities.
▪ Allocation of government resources and time scale – Based on the data stated in
the case it is difficult to infer that there will be change in resource allocations.

Economic Factors
Economic factors usually involve – rate of tax, rate of inflation, country name economic
situation, exchange rate, employment market conditions, disposable income for
consumers, rate of interest, country name economic stage, etc.

▪ Workforce skills on the current market – Tokyo DisneySea can leverage good skill
level of employees in the present market to not only improve services in Finance &
Accounting but also leverage those skills to create global opportunities.
▪ Tokyo DisneySea could exploit good employee skills in the current market not only
to improve Finance & Accounting services, but also to leverage those skills to build
global opportunities.
▪ Financial market efficiency – To expand further globally, Tokyo DisneySea could
have access to vibrant financial markets and easy access to liquidity on the equity
market. In the Finance & Accounting sector, government intervention can impact
the fortunes of Tokyo DisneySea and its competitors.
▪ Inflation rate – The market's easy liquidity posts the great 2018 recession will result
in increased inflation on the DisneySea markets in Tokyo. It can have an impact on
consumers at DisneySea.
▪ Exchange rate – On basis of the data stated in the case, Tokyo DisneySea investment
plans can impact the volatile exchange rate not only in the short term but also in the
long term.

Social Factors
Every society and culture have its own business way. Social factors like these can assist
companies like "Tokyo DisneySea" not only to better understand the way they operate,
but also to understand the customer preferences in the market in which they operate.
Social factors typically involve: demographic characteristics, attitude towards certain

8
goods and services, social roles and standards, health and safety attitudes, gender roles,
traditions, culture, entrepreneurial spirit acceptance, and leisure interests.

▪ Health and safety attitude – The attitude towards health and safety is becoming lax
with increasing liberalization. As the cost of failure is too high, Tokyo DisneySea
needs to stay away from these attitudes.
▪ Structure of power – In Tokyo DisneySea's most prominent market, there is a
growing trend of income inequality. This has changed the power structure that has
been persistent over the past 6 - 7 decades in society.
▪ Education level – The education level is high in the Tokyo DisneySea existing
markets. Based on evidences in the case study, you can suggest building a R&D
center in the local market.
▪ Migration – In the Tokyo DisneySea market, the broader attitude towards migration
is negative. This can affect the ability of Tokyo DisneySea to bring international
talent to manage the country's operations.
▪ Societal and hierarchical standards – The society described in the case study differs
from the Tokyo DisneySea home market. It should seek to build a local team that
better understands societal standards and attitudes to serve customers
▪ Demographics – Tokyo DisneySea has demographics on its side for the Finance &
Accounting sector.

Technological Factors
Technology is rapidly affecting different industries and some of the technological
factors affecting the industry are: technology supply chain disruption, population
access to technology, product innovation, innovation in customer service, rate of
technology - driven change, access to mobile phones driving empowerment, access to
more information, etc. Technological progress is rapidly going to disrupt Tokyo
DisneySea's supply chain model as it provides more channel partners with access to
information, leading to higher profit sharing.

▪ Technology transfer and licensing issues for Tokyo DisneySea– There is no strong
culture of technology transfer in Corporate Governance, Cross - cultural
Management, Global Strategy, Joint Ventures, Managing People Sphere, and
businesses are often reluctant to transfer or license technology for fear of creating
competitors from collaborators.
▪ Empowerment of supply chain partners– Technology has reduced the life cycle of
various products, allowing suppliers to develop new products quickly. This has put
pressure on the marketing department of Tokyo DisneySea to keep suppliers happy
by promoting a variety of products. It has added to the Tokyo DisneySea operating
costs.

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▪ Reduced production costs – The newest technology in the Finance & Accounting
sector is rapidly reducing production and service costs. Tokyo DisneySea needs to
restructure its supply chain in order to provide greater flexibility to meet customer
needs and cost structure
▪ Maturity of technology – on the basis of the case study data, the industry's
technology is still in its infancy and most players are struggling for new innovations
that can enable them to gain higher market share.

Environmental Factors
Sustainability and environmental factors have become critical for businesses over the
past decade. Government and pressure groups are quick to ask organizations to comply
with environmental standards. Several of the environmental factors are: climate change,
rising focus on sustainability, pollution regulatory laws, proper disposal of waste,
reducing carbon footprints, insurance policies, safe disposal of dangerous materials,
safe treatment of water, etc.

▪ Customer activism – More customer awareness has placed environmental factors at

the center of the DisneySea strategy. Customers wanted Tokyo DisneySea not only
to adhere to legal standards but also to exceed them as a responsible community
stakeholder.
▪ Waste management has become increasingly important for players like Tokyo
DisneySea, especially for units close to urban cities. Government is rapidly
developing strict standards for urban waste management.
▪ The trend of recycling is emerging quickly in many economies as a norm rather than
a good thing to do. In the Finance & Accounting sector, Tokyo DisneySea must make
plans to comply with regulations and meet consumer expectations. Regular scrutiny
by environmental agencies is also adding to the cost of operations of the Tokyo
DisneySea.
▪ Environmental standards also alter product innovation priorities. Products are
designed in many cases based on environmental goals and expectations rather than
conventional value proposals.

Legal Factors
Legal factors in any country plays a vital role. Before entering the international market,
Tokyo DisneySea management must consider following legal factors–time to deliver
justice, data protection laws, intellectual property rights protection, justice system,
copyright law, bias towards home players, discrimination laws, etc.

▪ Business Laws – The business laws procedure that government follows. Are these
norms consistent with international institutions such as World Trading
Organization, European Union etc. Legal protection in different countries for

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 intellectual property, patents, copyrights and other IPR rights. How will Tokyo
DisneySea be affected if insufficient protection is available.
▪ Environment Laws and guides – The country's level of environmental laws and
what needs to be done by Tokyo DisneySea to meet those laws and regulations.
▪ Data protection laws – Data protection has emerged as a critical part of privacy
issues over the past decade, as well as intellectual property rights. Tokyo DisneySea
needs to consider whether or not the country has a robust legal and technological
mechanism to protect itself from data breaches.

Porter’s Five Factors Analysis

Because, over time, the profitability of different industries is systematically different
and predictable, it is quite useful to get a understanding of the industry dynamics.
'Porters Five Forces Model' has been used to assess the industry situation. The present
situation in the industry is determined to make further decisions by using this
analysis.

Threat of
New
Entrants

Bargaining
Threat of
Power of
Subtitutes
Suppliers
Porter’s
Five
Factors

Bargaining
Intensity
power of
of Rivalry
Buyers

Bargaining power of buyers

If the buyers have strong bargaining power then they usually tend to drive price down
thus limiting the potential of the Tokyo DisneySea to earn sustainable profits.

Customers ' bargaining power is quite high in service and entertainment industry.
Because it took a large number of customers to make the operations of DisneySea Park
run smoothly, the customers had some power. Potential customers might have been
reluctant to spend the money they needed to buy the product. Most of the product mix

11
from Disney focused on intangible returns on money from the buyer. The case that some
customers may not realize they had such a return may have increased the customers'
bargaining power.

Bargaining power of suppliers of Tokyo DisneySea

If suppliers have strong bargaining power then they will extract higher price from the
Tokyo DisneySea.

Supplier's bargaining power was quite high as the licenser WD was a tough negotiating
party. With their terms and conditions, the licenser was incredibly tough and wanted
to pay for nothing but only interested in the royalty fees. So, the supplier's bargaining
power is very high.

Rivalry among existing players

If competition is intense then it becomes difficult for existing players such as Tokyo
DisneySea to earn sustainable profits.

At that time, very few players competed in this industry. So, the rivalry among
competitors was less intense. This sector had enormous opportunities, but due to huge
investment requirements and area suitability, the scope for business expansion was
limited. Therefore, Within the industry, rivalry among existing firms was relatively low.

Threat of new entrants

If there is strong threat of new entrants then current players will be willing to earn less
profits to reduce the threats.

The kind of park that OL was setting up required huge investments. Besides a vast area
of land had to be committed to the project. New Entrants' threat is therefore very
minimal. Based on past experience, company officials knew what the target customers
wanted to know to a large extent. For new entrants to the industry, therefore, an
extremely large amount of capital investment was required if they were to compete with
the Disney Corporation. Such a large capital requirement could have been met only by
very large companies.

Threat of substitute products and services

If the threat of substitute is high then Tokyo DisneySea has to either continuously invest
into R&D or it risks losing out to disruptors in the industry.

Substitute products threat was very low because there were not so many potential
alternative products in the amusement park. Those who were eager to come and have
had to visit the park for the kind of fun that the park offered. Probably, other cartoon

12
figures, theme parks, and movie characters might have penetrated the industry where
Disney operated, but this was not necessarily a major threat.

SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and
weaknesses are internal to your company—things that you have some control over and
can change. Opportunities and threats are external — things happening in the larger
market outside the company. It usually includes identifying the business venture or
project objective and assessing the internal and external factors favorable and
unfavorable for achieving that goal. SWOT analysis was conducted for Oriental Land
Corp (OL) to analyze the prospects and obstacles that OL faces in the case.

Strengths
▪ Continuous technical and management support are coming from Walt Disney.
▪ Orient Land Corp and Walt Disney brand have merged together to produce a
greater synergistic effect.
▪ Around 2493 full time employees and 6355 part time employees are working in OL.
▪ High liner brand
▪ The Industrial Bank of Japan and Mitsui Trust Bank was the second largest partner
▪ OL got 750000 tsubo which is 10 times larger than the Disneyland in Los Angeles
▪ Highly profitable business
▪ The main strengths in internal resources refer to human resources and financial
stability

Weaknesses
▪ Customer would get bored with the existing attraction and facilities
▪ WD’s position in the Tokyo Disneyland contract-take no risk, just collect the fee
▪ High overhead expenses

Opportunities
▪ High demand (Most of the customers were repeat visitors).
▪ OL has the opportunity of being the market leader in this industry.
▪ The future of Japanese industries would shift toward the service industries.

Threats
▪ There is a chance of demand fall. Management is estimating a steady fall in demand
after four years.
▪ Charged higher licensing fee by the Walt Disney

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▪ The effects of an economic depression could make it too expensive for people to
utilize the services and the products offered.

Ratio Analysis
Ratio analysis has actually been done to measure the historical performance of the
company. For data constraint it was not possible to calculate most of the required ratios
but some important ratios were calculated based on the provided data which would
give the insight about the company’s recent performance.

Operating Profitability Ratio

Profitability ratios measure the specific companies expected ability to generate profit.

Profitability Ratio 1996 1997 Change

Net Profit Margin 0.159716 0.157895 -1%
Gross Profit Margin 0.306702 0.330007 8%
Operating Profit Margin 0.245045 0.231005 -6%
Pretax Margin 0.237751 0.225461 -5%
Basic Earning Power 0.11842 0.117608 -1%
Return on Asset 0.077184 0.080386 4%

From the above given data, the performance of the company for the year 1996 and
1997is found. The performance of the company, in terms of operating profit margin,
decreased slightly in 1997 than in 1996. It was due slight decrease in the Earnings Before
Interest and Taxes (EBIT). Net profit margin and Return on Asset (ROA) remains
constant for both the years. The graphical presentation of these profitability is given
below:

0.35

0.3

0.25

0.2

0.15 1996
1997
0.1

0.05

0
Net Profit Gross Profit Operating Pre tax Basic Return On
Margin Margin Profit Margin Earning Asset
Margin Power

14
Efficiency Ratio
Fixed asset turnover measures the company's ability to use its fixed assets to generate
sales and Total asset turnover measures the company's ability to use its total assets to
generate sales.

Activity Ratio 1996 1997 Change

Fixed Asset Turnover 1.349178 1.487053 10%
Total Asset Turnover 0.483256 0.509114 5%
Here the results of both fixed asset turnover and total asset turnover tells that the
company’s performance is improving. The trend of fixed asset turnover and total asset
turnover are in increasing trend. Fixed asset turnover in 1996 was 1.35 and it increased
to 1.49 in 1997. At the same way total asset turnover increased from 0.483 to 0.509 in
1997. Here, the graphical presentation of efficiency ratios is given:

1.6
1.4
1.2
Axis Title

1
0.8
0.6 1996
0.4 1997
0.2
0
Fixed Asset Turnover Total Asset Turnover
Axis Title

Solvency Ratio
Times interest earned ratio shows the company's ability to pay interest expenses with
the current level of business activities. The times interest earned ratio for the company
shows positive trend. This ratio is on increasing pattern. In the year 1996 the ratio was
.02344 which increased to 29.05 in 1997. So, the company’s performance is improving in
terms of times interest earned. The graph for this ratio is given below:

Solvency Ratio: 1996 1997

Interest Coverage 0.029767 0.023998 -19%

15
 1997 0.023997741
Axis Title

Interest Coverage
1996

0.029766919

0 0.01 0.02 0.03 0.04

DuPont

Analysis
The DuPont system divides the ratio into several components that provide insights into
the causes of a firm’s ROE and any change in it. It also provides additional insights into
the effect of financial leverage on the firm and pinpoints the effect of income taxes on
ROE. ROE is a comprehensive indicator of a firm’s performance because it provides an
indication of how well managers are employing the funds invested by the firm’s
shareholders to generate returns.

(In Billion US Dollar)

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004
0.160
Net Profit 0.171 0.161 0.1613 0.0581 0.0614 0.1668 0.2301 0.263
1

Net Sales 8.60% 8.80% 8.80% 8.90% 9.00% 9.10% 9.20% 9.30% 9.40%

ROA 4.10% 4.50% 4.70% 5.10% 5.40% 5.70% 6.10% 6.60% 7.00%
Total 106.60 106.10 105.70 105.30 104.90 104.60
Assets % % % % % %
ROE 5.40% 5.7% 6.10% 6.50% 6.90% 7.30%
17.10 16.10 16.00
NPM 16.10% 5.80% 6.10% 16.70% 23.00% 26.30%
% % %
TAT 8.60% 8.80% 8.80% 8.90% 9.00% 9.10% 9.20% 9.30% 9.40%
LEVERA 106.60 106.10 105.70 105.30 104.90 104.60
GE % % % % % %
ROE 5.40% 5.70% 6.10% 6.50% 6.90% 7.30%

The five-factor model shows that financial leverage attributed most to the ROE to rise.
Here we see that ROE is more sensitive with leverage than to assets and profit margin.
The sensitivity of ROE is also changing dramatically as the time changes.

16
Strategy Analysis
Oriental Land Corporation and Walt Disney both have their own interest in the
particular project.

• Oriental Land Corp. had already brought Walt Disney to Japan by opening Tokyo
Disney Land which is a theme amusement park. The Tokyo Disney Land was a
success for Oriental Land Corp. The management began to feel a need for growth
and expansion after Tokyo Disney Land became a hit. Management of OL knew that
most of their customers were repeat visitors and so they thought customers will
eventually get bored. This made them in look for a new idea to build a new park to
attract customers. So, when Walt Disney asked them to consider the idea of
constructing a new amusement park, they were interested. The strategy of OL as a
Japanese corporation was to maximize their corporate wealth. This theory
postulated that the firm had to treat their stakeholders, such as management, labour,
suppliers, creditors, the local community and the government. The goal was to earn
as much as possible, but to retain enough of the corporate wealth for the benefit of
all stakeholders.

• Walt Disney was already a leader in the industry. They were going through a rough
phase during 1997 financially. Walt Disney was not interested in expanding at that
time in overseas market. The sought to receive a fixed amount of payment as license
fee in exchange of providing technical advice, management support for overseas
projects. So, they were interested in the Tokyo Disney Land project and went
through it. After realizing the tremendous success of Tokyo Disney Land, WD now
wished to maximize revenue from Japan through license fees and thus proposed
Oriental Land Corp. to inquire the idea of Disney Sea park. Walt Disney’s goal was
to maximize their shareholders’ wealth and aimed to maximize the return to
shareholders, as measured by the sum of cash flows, capital gains and dividends,
for a given level of risk.

American management and Japanese management

Management Japanese firm American firm

Goals Market share Return on investment
Strategies Long-term Short term
Production, Selling and
Main function Finance & Planning
R&D

17
 Organization Organic Mechanic
Main member Employees Stockholder
Open Market and Open Market and Family
Relation to Stockholder
Keirestu Group
Business Transaction Long Short

Differences in American and Japanese corporate governance:

Points of Differences In US In Japan

Corporate
Anglo-American type Japanese-German type
Governance System
Board member Fewer than 15 More than 30
Maximizing Corporate
Maximizing return of
Objective of the firm wealth and benefit for
the shareholders
all shareholder
Capital Budgeting Average Accounting
NPV, IRR
techniques Return
Principals
Agents (Manager) are
(Stakeholders)
Agency Problem likely to have their own
themselves can have
goals
different goals
Short term value
Term of value Long term value
maximization to meet
maximization maximization
the market expectation
Mostly temporary but
Mostly permanent but
Employment Strategy permanent is also
temporary is available
available

18
SSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSSS

Chapter-2

Case Synopsis

19
Overview of The Case
Oriental Land Corp. (OL) is a company based in Japan. Oriental Land Corp. was
founded on July 11, 1960. It had $ 0.53 billion of paid - in capital and $ 1.53 billion of
annual sales revenue. This is the company that brought Walt Disney to Japan.

The company entered into license agreement with the US based company Walt Disney
Company (WD), which involved the design, construction and operation of Tokyo
Disneyland in Japan in the April of 1979. The negotiation it went through with WD was
a tough one, since WD’s terms and conditions in respect of the deal were quite lopsided.
The initial condition made by Walt Disney was that they would be receiving 10%
royalty in the admission fees and sales of food and beverage items. However, finally a
deal was made between Oriental Land Corp. and Walt Disney Company, which
stipulated a license fee of 10% on admission fees and 5% on sale of foods, beverages and
novelty goods.

The financial position of WD was weak at the time of negotiations. Every year,
Disneyland and Walt Disney World attracted about 10 million entrants, and WD was
unable to increase income by raising the entrance fee. The division of production of film
and television was also doing poorly. Under such contexts, extracting a fixed payment
from their offshore partner, irrespective of the success of the theme park, seemed to be
an attractive option for WD.

Tokyo Disneyland became a tremendous hit. It drew 10.3 million visitors in accordance
with the expectations of WD for the first year. Average admission fee per person never
dropped below 10 million after the opening year, and Average admission fee per person
peaked at 17.45 million in 1998. The theory that earlier enthusiasm would eventually
wear off had been proven wrong.

According to OL's 1988 visitor analysis, the percentage of repeat customers seemed to
be 75 percent which was far above 50 percent of US Disney. Visitors spent an average
of 7,000 yen ($ 59.31) on admission fees, food, beverages and novelty goods exceeding
the original estimate of 5,000 yen ($ 42.37), causing overall sales of 80 billion yen ($ 0.088
billion).

Walt Disney wished to maximize revenue from Japan through license fees and to that
effect, the company proposed Oriental Land Corp. to consider the idea of constructing
a new entertainment park, the DisneySea Park project. The conditions were quite
similar to the previous project. WD would receive a license fee for letting OL use the
“Disney” name and would provide OL with valuable technical advice and management
support for the new project. OL’s management was having a rough time deciding on
the project as they could hardly agree with the terms and conditions stipulated by WD.
They believed it was unfair for WD to receive such a high royalty and assume no risk

20
by avoiding any financial burden. So, to overcome such a deadlock in negotiations OL
asked its senior executives and planning division to analyze the financial prospects of
the project. The top management wanted to get the idea of how long it might take the
project to begin generating profits.
Background of Oriental Land Corporation
Date of Establishment 11-Jul-60
Paid-in Capital 63 billion (US$ 0.53 billion)
Sales 180 billion (US$ 1.53 billion
Income before tax 28 billion (US$ 0.24 billion)
President Toshio Kagami
Members of Board 28
Employees 2493 (full time)
6355 (part time)
Address 1-1, Mahiama, Urayasushi, Chiba-ken
Japan.
Main Banks Industrial Bank of Japan
Mitsui Trust Bank
Major Shareholders Mitsui Real Estate Corp. (20.48%)
Keisei Electric Railway Corp. (11.20%)
Tie-up Company Disney Enterprises Inc. (USA)

Background of Tokyo DisneySea Park

Projected Initial ¥400 billion ($3.4 billion)
Investment
Location Tokyo Disney Resort, Urayasu, Chiba Prefecture,
Japan.
Area 176 Acres (71 Ha)
Theme Nautical, Exploration & Adventure
Ports of Call (Themed 7; Mediterranean Harbor (opens up to rest six)
Areas) American Waterfront
Lost River Delta
Port Discovery
Mermaid Lagoon
Arabian Coast
Mysterious Island
Construction Started 2000
Opened 4th September, 2001
Operated by The Oriental Land Corporation

21
Summary of Problem Statement
A summary of the problem statement can be drawn up based on the case
synopsis as stated below-
• Should Oriental Land Corp. under take the “DisneySea Park” project under
the prevalent weak economic conditions Japan in that period?

• Whether the current profitability and earnings capacity of the company

could sustain the investment period?

• Does DisneySea Park create any non-financial benefits?

• Are there any other real options?

22
 Chapter-3

Country Risk Analysis

23
Country Risk Assessment

Political risk (Japan)

Japan seems to have political stability in the country. socioeconomic circumstances and
investment profile are favorable to both domestic and foreign investors. External and
internal conflict intensity is very minimal and in case of erasing corruption from the
country, the country is placed in quite a favorable position. There is a system of law
enforcement that lets the country to eradicate all kinds of inequality and disparity.
Japan is a constitutional monarchy with very restricted emperor authority. Being
positioned as a ceremonial figurehead, the constitution describes him as "the symbol of
the state and the people's unity." Authority is typically retained by Japan's Prime
Minister and other Diet elected representatives, while sovereignty is held by the people
of Japan.

Investors are always closely watching state interference in economic matters as to what
it means to decide where to allocate the money, even though this is usually more of a
concern in emerging economies than in advanced economies.

Political Risk

Maximum
Sequence Political Risk Component Japan
Points
A Government Stability 12 12
B Socioeconomic Condition 12 11
C Investment Profile 12 10
D Internal Conflict 12 10
E External Conflict 12 11
F Corruption 6 4
G Military in Politics 6 5
H Religious Tensions 6 4
I Law and Order 6 4
J Ethnic Tensions 6 5
K Democratic Accountability 6 5
L Bureaucracy Quality 4 3
Total 100 84

Level of Risk Very Low Risk

24
Economic Risk (Japan)
Japan is the third biggest economy in terms of nominal GDP, after the United States and
China, and the world's fourth largest national economy in terms of purchasing power
parity (PPP), after the United States, China and India. After reaching one of the world's
highest rates of economic growth from the 1960s through the 1980s, the Japanese
economy steadily declined in the early 1990s, when the "bubble economy" crumbled,
displayed by falling stock and real estate prices. Japan managed to recover from its
worst time of economic stagnation since World War II. Real Japanese GDP grew by an
average of about 1 percent annually in the 1990s, compared to around 4 percent
annually in the 1980s.

Economic Risk

Maximum
Sequence Economic Risk Components Japan
Points

A GDP per head 5 5

B Real GDP Growth 10 9

C Annual Inflation rate 10 9
D Budget Balance as a % of GDP 10 8
E Current account as a % of GDP 15 15
Total 50 46

Level of Risk Very Low Risk

Financial Risk (Japan)

More than 200 percent of Japan's annual gross domestic product, the largest nation in
the world, accounted for public debt. The long - term debt rating of Japan was "Aaa" in
line with the size of the country's deficit and borrowing level, according to Moody's
rating in 1997. Another prominent rating agency "S & P" rated Japan "AAA" back then
in 1997. Three quarters of the gross domestic product is represented by the service
sector. Japan is home to some of the largest and most technologically advanced
producers of motor vehicles, electronics, machine tools, steel and nonferrous metals,
ships, chemical substances, textiles and processed foods.

25
 Financial Risk

Maximum
Sequence Financial Risk Components Japan
Points
A Foreign Debt as a % of GDP 10 8

B Foreign Debt service as % of export 10 9

C C/A as a % of Export 15 15
Net int’l liquidity as months of import
D 5 4
cover
E Exchange rate stability 10 9
Total 50 45

Level of Risk Very Low Risk

Composite Risk Rating (Japan)

Composite Risk Rating

CPFER =0.5(PR+ER+FR)

Category of Risk Japan

Political Risk 84

Economic Risk 46

Financial Risk 45

Total 175
CPFER =0.5(PR+ER+FR) 87.5

Level of Risk Very Low Risk

Political risk (U.S.A.)

Political risk is becoming a growing concern for investors in the United States as the
government plays a larger and more controversial role in private enterprise because of
the financial crisis. Political risk is becoming more of a U.S. issue as some investors howl
over what they see as arbitrary intrusion by the government in business affairs.

26
In assessing political risks in emerging markets, investors often look at factors such as
the stability of the government and the soundness of its economic policies. In developed
countries, they assess things such as proposed changes to the tax system and the
resulting impact on corporate profits.

Risks in the United States include fears the dollar could dive because of the rapidly
growing budget deficit and the potential for inflation because of radical moves by the
Federal Reserve to flood the financial system with money.

Political Risk

Sequence Political Risk Component Max Points U.S.A.

A Government Stability 12 11
B Socioeconomic Condition 12 12
C Investment Profile 12 12
D Internal Conflict 12 9
E External Conflict 12 9
F Corruption 6 3
G Military in Politics 6 5
H Religious Tensions 6 5
I Law and Order 6 5
J Ethnic Tensions 6 5
K Democratic Accountability 6 6
L Bureaucracy Quality 4 3
Total 100 85

Level of Risk Very Low Risk

Economic Risk (U.S.A.)

The US has the most powerful, diverse, and technologically advanced economy in the
world, with a per capita GNP of $21,800, the largest among major industrial nations.
In1989 the economy enjoyed its seventh successive year of substantial growth, the
longest in peacetime history. The expansion featured moderation in wage and
consumer price increases and a steady reduction in unemployment to 5.2% of the labor
force. In 1990, however, growth slowed to 1% because of a combination of factors, such
as the worldwide increase in interest rates, Iraq's invasion of Kuwait in August, the
subsequent spurt in oil prices, and a general decline in business and consumer
confidence. Ongoing problems for the 1990s include inadequate investment in

27
education and other economic infrastructure, rapidly rising medical costs, and sizable
budget and trade deficits.

Economic Risk

Maximum
Sequence Economic Risk Components U.S.A.
Points
A GDP per head 5 5
B Real GDP Growth 10 10
C Annual Inflation rate 10 9
D Budget Balance as a % of GDP 10 9
E Current account as a % of GDP 15 14
Total 50 47

Level of Risk Very Low Risk

Financial Risk (U.S.A.)

The nation endured a depression throughout 1982. Business bankruptcies rose 50
percent over the previous year. Farmers were especially hard hit, as agricultural exports
declined, crop prices fell, and interest rates rose. But while the medicine of a sharp
slowdown was hard to swallow, it did break the destructive cycle in which the economy
had been caught. By 1983, inflation had eased, the economy had rebounded, and the
United States began a sustained period of economic growth. The annual inflation rate
remained under 5 percent throughout most of the 1980s and into the 1990s.

According to the ICRG rating system, U.S.A gets the highest score of 91.75 out of 100,
Japan gets almost same score of 90.5 that is 1.25 less than U.S.A. However, these two
countries get ‘Very Low Risk’ rating.

Financial Risk

A Foreign Debt as a % of GDP 10 9

B Foreign Debt service as % of export 10 9

C C/A as a % of Export 15 15

D Net int’l liquidity as months of import cover 5 5

E Exchange rate stability 10 10

28
 Total 50 48

Level of Risk Very Low Risk

Composite Risk Rating (U.S.A.)

Composite Risk Rating

CPFER =0.5(PR+ER+FR)

Category of Risk U.S.A.

Political Risk 85

Economic Risk 47

Financial Risk 48

Total 180
CPFER =0.5(PR+ER+FR) 90

Level of Risk Very Low Risk

As per the ICRG rating system, the U.S.A. gets the higher score of 90 out of 100 than Japan. Japan also
gets very much the same rating as U.S.A. of 87.5 that is 2.50 less than the U.S.A.

29
 Chapter- 4

Analysis of Project &

Conclusion

30
Forecasting up to 2004
We have determined the net cash flows. Finally, we have calculated the NPV, IRR and
MIRR of for the project up to 2004 as per the 7-year projections of Oriental Land Corp

Assumptions
The planning department of OL calculated a sensitive seven - year projection. Future
earnings and expenditure were estimated for up to seven years based on historical data
from 1996 to 1997. There have been the following financial assumptions:

▪ In 2000, an initial investment of ¥400 billion (US$ 3.4 billion) in Tokyo Disney Sea
Park will be made

▪ With the opening of Tokyo Disney Sea Park, Average admission fee per person will
remain the same over the next four years and will increase by 30% in 2002. In 2003
and 2004, they will increase by 10%. The average admission fee per person in 1997
was ¥10,421 (US$ 88.30). In view of the deflationary climate, admission fees will
increase by 2% annually over the four years after 1997 and by 15% in 2002 at the
opening of Tokyo Disney Sea Park and by 10% in 2003. Entrance fees will remain at
the same rate as in 2003 in 2004.

▪ If the new project is not undertaken, Average admission fee per person will remain
the same during the seven-year period and administrative fees will increase by
2%annually over those seven years.

▪ Opening cost other than depreciation (67% of sales, the ratio of 1997data),
administrative expense (7%) and other expenses (4%) will increase proportionately
with the increase in sales. These projections will be applied despite OL’s decision to
invite or not.

▪ Depreciation of the ¥400 billion (US$3.4 billion) investment in 2000 will be

conducted using the straight-line method over 20 years.

▪ Funds borrowed as of 1997 totaled ¥23 billion (US$195 billion), for which interest
payments in 1997 were ¥1 billion (US$8.5 million) (the debt interest rate is 4.34%). It
was assumed that the cost of future borrowing would be 4.34% (the same as that in
1997). It was also assumed that for future investments, two-third would be financed
by the internal holding reserves and capital increases (including the issuance of
preferred stocks) and the one- third would be financed by borrowings. This
assumption was made based on the past performance of the company.

▪ The Japanese rate of taxation was 43%.

31
• The Weighted Average cost of capital is assumed to 5.65%. No country risk
premium is added as Japan’s country risk is very low.

Results

• The estimated net present value of the project is US $463.59 million

• The IRR is 7% and MIRR is 7%.

NPV $463.59 million

IRR 7%
MIRR 7%

Based on the projections we took on the basis of the seven-year projection of senior
executives of Oriental Land Corp, the NPV that we get is positive and amounts to
$463.59 million. The IRR is 7% and MIRR is also 7%.

S0, based on the result, we conclude that the project should be undertaken as the project
managed to scored a positive NPV. Besides the IRR=7% is also higher than the hurdle
rate of 5.65%.

32
Forecasting up to 2016
We have also forecasted the total revenues for the project up to 2016 since the
depreciation of the investment has been conducted using 20-year straight line method.
Then we have assumed various components like number of visitors, average admission
fee per person and debt principal repayment rate, Interest rates tax rate are remained
unchanged. Then we have determined the net cash flows. Finally, we have calculated
the NPV, IRR and MIRR of the project.

Assumptions
• We have forecasted Average admission fee per person, the number of yearly visitors
and debt principal payment rate up to 2016.

• Average admission fee per person has been assumed to increase due to fluctuations
in the rate of inflation. Due to deflationary effect Average admission fee per person
is assumed to increase by 10% in 2005. In the following year it is assumed to rise by
2% and will remain same during 2007. It will rise again by 5% in 2008. Again, due
to deflationary effect it will rise by 10% in 2010, 2011 and 2012. In 2013 there will be
no growth in average admission fee. In the next two years the average admission fee
per person will rise by 2% due to rising inflation and in 2016 due to deflationary
effect it is assumed to increase by 10%.

• The number of visitors has also been projected up to 2016. It is assumed to increase
by 10% during the years 2005-2007 and will remain constant up to 2016.

• The assumption regarding debt principal payment is that, principal payment rate
will be 5% each year of the outstanding borrowings.

• The Weighted Average cost of capital is assumed to 5.65%. No country risk

premium is added as Japan’s country risk is very low.

• The Japanese rate of taxation was 43%.

33
 Number of Visitors Average Admission Fee Per Person
Year Growth Year Growth
2005 10% 2005 10%
2006 10% 2006 2%
2007 10% 2007 0%
2008 0% 2008 5%
2009 0% 2009 15%
2010 0% 2010 10%
2011 0% 2011 10%
2012 0% 2012 0%
2013 0% 2013 2%
2014 0% 2014 2%
2015 0% 2015 2%
2016 0% 2016 10%

10% 10% 10%

0% 0% 0% 0% 0% 0% 0% 0% 0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Growth

Average Admission Fee Per Person

20%

15%

10%

5%

0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Growth

Results

• The estimated net present value of the project is US $1,356.82 million

• The IRR is 13% and MIRR is 11%.

34
 NPV $1,356.82
IRR 13%
MIRR 11%

On the basis of the projections that we made up to the year 2016, the NPV of the new
project with projections up to 2016 comes out as positive and the value amounts to
$1356.82 million. The IRR for the new project is 13% and the MIRR is 11%

From this result, we can conclude that the project should be given a go ahead. Although
the Japanese economy was going through a slightly weaker condition during 1997, the
project had shown very good prospects for Oriental Land Corp.

35
Monte Carlo Simulation
In our NPV, IRR and MIRR calculation, we have run Monte Carlo Simulation by
specifying a distribution of probability of some cash flow variables. We then had to
randomly select a value for each uncertain variable based on its distribution of
probability. The net cash flows and estimated NPV were then determined. Then the net
cash flows and estimated NPV were determined. We have run the procedure for 10000
times and estimated expected value, standard deviation and coefficient of variation
(CV) of NPV.

The Monte Carlo simulations yield the following results:

Forecast: NPV
Statistic Forecast values
Trials 100,000
Base Case $1,356.82
Mean $1,358.96
Median $1,370.78
Mode $724.00
Standard Deviation $319.01
Variance $101,767.10
Skewness -0.2178
Kurtosis 3.1
Coeff. of Variation 0.2347
Minimum '-$164.19
Maximum $2,587.09
Mean Std. Error $1.01

36
From the analysis of the simulation, we can state that the mean Net Present Value (NPV)
is $1,358.96 million, while the CV is 23.47 percent, which implies the company's low
risk.

Forecast: IRR
Statistic Forecast values
Trials 100,000
Base Case 13%
Mean 13%
Median 13%
Mode 12%
Standard Deviation 1%
Variance 0%
Skewness -0.237
Kurtosis 3.1
Coeff. of Variation 0.0423
Minimum 10%
Maximum 15%
Mean Std. Error 0%

From the analysis of the simulation, we can state that the mean Internal Rate of Return
(IRR) is 13%, while the CV is 4.23 percent, which implies the company's low risk.

37
 Forecast: MIRR
Statistic Forecast values
Trials 100,000
Base Case 11%
Mean 11%
Median 11%
Mode 11%
Standard Deviation 0%
Variance 0%
Skewness -0.324
Kurtosis 3.26
Coeff. of Variation 0.0307
Minimum 9%
Maximum 13%
Mean Std. Error 0%

From the analysis of the simulation, we can state that the mean Modified Internal Rate
of Return (MIRR) is 11%, while the CV is 3.07 percent, which implies the company's
low risk.

38
Sensitivity Analysis

As in the Sensitivity chart followed by this simulation graph shows that the Net
Present Value (NPV) is most sensitive to the changes in number of visitors and the
sensitivity accounts for -73.8%. Next to changes in number of visitors, NPV is most
sensitive to changes in Cost of capital and the sensitivity accounts for -14.1%.

As in the Sensitivity chart followed by this simulation graph shows that the Internal
Rate of Return (IRR) -65.4% is most sensitive to the changes in number of visitors and

39
the sensitivity accounts for -73.8%. Next to changes in number of visitors, NPV is most
sensitive to changes in Cost of capital and the sensitivity accounts for -23.7%.
Real Option:
Options provide the right to invest in a project, but not the obligation. Their value is
thus driven by the possibility of achieving a large upside gain in combined effect with
the fact that companies can usually abandon their project before their investment in
them costs too much, thus eliminating the real benefit. The value of an option must
therefore increase as the uncertainty surrounding the underlying asset increases,
whether that asset is financial or real. Oriental Land cop. may explore such real option
via Tokyo Sea View Grand Residence. They have a vast area of land amounting 750000
tsubo (615 acres) at their hand which can be used to explore such expansions. These
hotel project can increase the revenues of Tokyo Disney Sea Park and add value to
Oriental Land Corp. The cost of this project may include but not limited to $130 million.
In 1962,

We assumed that the investment can be realized in all operational year of the projects.
Real discount rate has been assumed as 11.5% and Risk-free rate has been assumed as
.51%.

Calculation of Expected Cash Flow

Year Probability CF Expected net cash flow

2004 0.06 15 0.9

2005 0.08 18 1.44

2006 0.07 11 0.77

2007 0.04 20 0.8

2008 0.06 12 0.72

2009 0.08 18 1.44

2010 0.1 25 2.5

2011 0.1 28 2.8

2012 0.08 22 1.76

2013 0.1 27 2.7

40
 2014 0.09 30 2.7

2015 0.06 21 1.26

2016 0.08 25 2
Total 1 21.79

Present value of Expected Cash Flows(s) = $143.45

The valuation of the real option is done by using the Black-Scholle model.

Option Pricing Calculator

S $143.45 Current Asset Value

X 130 Exercise (Strike) Price
T 12.00 Time to Maturity (Years)
rf 0.51% Risk-free Interest Rate (% p.a.)
s 32.88% Volatility (% p.a.)

d1 0.7097
d2 -0.4294

N(d1) 0.7611
N(d2) 0.3338

CE 68.355 European Call Value ($)

PE 47.184 European Put Value ($)

Conclusion
Japan is a country full of resources which need to be explored. The moderate risk level
of the country makes it even more suitable to be explored. The expected result shows
that the new project Tokyo DisneySea park has a positive NPV and adds value to
Oriental Land Corporation. That is why Oriental Land’s cor. should start the project
immediately to increase the total revenue of the company.

41
Appendix
Without the Project
1997 1998 1999 2000 2001 2002 2003 2004
17368. 17368. 17368. 17368. 17368. 17368. 17368. 17368.
Number of Visitors (In Thousands) 0 0 0 0 0 0 0 0
Admission Fees 88.3 90.1 91.9 93.7 95.6 97.5 99.4 101.4
Sales (In Million $) 1533.6 1564.3 1595.6 1627.5 1660.0 1693.2 1727.1 1761.6
Operating Cost (67% of sales) 1027.5 1048.1 1069.0 1090.4 1112.2 1134.5 1157.1 1180.3
Depreciation 93.9 93.9 93.9 93.9 93.9 93.9 93.9 93.9
Administrative Expenses (7% of
sales) 107.4 109.5 111.7 113.9 116.2 118.5 120.9 123.3
Other Expenses (4% of Sales) 61.3 62.6 63.8 65.1 66.4 67.7 69.1 70.5
EBIT 243.5 250.2 257.1 264.1 271.3 278.6 286.1 293.7
Interest Paid 8.5 7.6 6.8 6.2 5.6 5.0 4.5 4.1
Pre-tax Profit 235.0 242.6 250.3 257.9 265.7 273.6 281.6 289.6
Tax @43% 101.0 104.3 107.6 110.9 114.3 117.7 121.1 124.5
Profit after Tax 133.9 138.3 142.7 147.0 151.5 156.0 160.5 165.0
Depreciation 93.9 93.9 93.9 93.9 93.9 93.9 93.9 93.9
Cash Flow from Operations 227.8 232.2 236.6 240.9 245.4 249.9 254.4 258.9

1
With the Project
1997 1998 1999 2000 2001 2002 2003 2004
17368. 17368. 17368. 17368. 17368. 22578. 24836. 27319.
Number of Visitors (In Thousands) 0 0 0 0 0 4 2 9
Admission Fees 88.3 90.1 91.9 93.7 95.6 109.9 120.9 120.9
Sales (In Million $) 1533.6 1564.3 1595.6 1627.5 1660.0 2481.7 3002.9 3303.2
Operating Cost (67% of sales) 1027.5 1048.1 1069.0 1090.4 1112.2 1662.8 2011.9 2213.2
Depreciation 93.9 93.9 93.9 263.3 263.3 263.3 263.3 263.3
Administrative Expenses (7% of
sales) 107.4 109.5 111.7 113.9 116.2 173.7 210.2 231.2
Other Expenses (4% of Sales) 61.3 62.6 63.8 65.1 66.4 99.3 120.1 132.1
EBIT 243.5 250.2 257.1 94.7 101.9 282.7 397.3 463.4
Interest Paid 8.5 7.6 6.8 55.2 49.7 46.7 43.7 40.8
Pre-tax Profit 235.0 242.6 250.3 39.5 52.2 236.0 353.6 422.6
Tax @43% 101.0 104.3 107.6 17.0 22.4 101.5 152.1 181.7
Profit after Tax 133.9 138.3 142.7 22.5 29.8 134.5 201.6 240.9
Depreciation 93.9 93.9 93.9 263.3 263.3 263.3 263.3 263.3
Cash Flow from Operations 227.8 232.2 236.6 285.8 293.1 397.8 464.9 504.2

2
The New Project
1997 1998 1999 2000 2001 2002 2003 2004
Capital Investment -3400
Number of Visitors (In Thousands) 0 0 0 0 0 5210 7468 9952
Admission Fees 0 0 0 0 0 12 21 19
Sales (In Million $) 0 0 0 0 0 789 1276 1542
Operating Cost (67% of sales) 0 0 0 0 0 528 855 1033
Depreciation 0 0 0 169 169 169 169 169
Administrative Expenses (7% of sales) 0 0 0 0 0 55 89 108
Other Expenses (4% of Sales) 0 0 0 0 0 32 51 62
EBIT 0 0 0 -169 -169 4 111 170
Interest Paid 0 0 0 49 44 42 39 37
Pre-tax Profit 0 0 0 -218 -214 -38 72 133
Tax @43% 0 0 0 -94 -92 -16 31 57
Profit after Tax 0 0 0 -124 -122 -21 41 76
Depreciation 0 0 0 169 169 169 169 169
Net Cash Flow 0 0 -3400 45 48 148 210 245