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Assignment 3 corporate finance

Business Finance (Royal Melbourne Institute of Technology University Vietnam)

Studocu is not sponsored or endorsed by any college or university

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Table of Contents
TASK 1. FINANCIAL STATEMENT PROJECTION (2022-2026).........................................................................2

A. FOUNDATION.....................................................................................................................................................2
INCOME STATEMENT.......................................................................................................................................2
BALANCE SHEET:..............................................................................................................................................4
CASH FLOW STATEMENT:...............................................................................................................................5
B. FILL UP THE MISSING VALUE................................................................................................................................8
BALANCE SHEET FILL UP:..............................................................................................................................8
INCOME STATEMENT FILL-UP:......................................................................................................................9

TASK 2. WACC CALCULATION............................................................................................................................10

A. SIMPLE WACC.....................................................................................................................................................10
B. MODIFIED WACC CALCULATION ........................................................................................................................15

TASK 3. VALUE OF NETFLIX AS OF DECEMBER 2022...................................................................................16

TASK 4: RISK-RETURN OF NETFLIX’S SHARES.............................................................................................17

TASK 5: CRITICAL ANALYSIS..............................................................................................................................19

A. BOOST UP REDUCING BORROWED ACCOUNTS WITH PROVIDING CHEAPER PACKAGES........................................19

B. ACQUISITION OF OTHER POPULAR FILM STUDIO..................................................................................................21
C. CREATE AND DISTRIBUTE NON-FUNGIBLE TOKEN (NFT)...................................................................................22

TASK 6. INDUSTRY TALK......................................................................................................................................22

REFERENCE..............................................................................................................................................................25

APPENDIX..................................................................................................................................................................31

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Task 1. Financial Statement Projection (2022-2026)

A. FOUNDATION
INCOME STATEMENT
1. Revenue Forecast
There is no historical relationship between GDP growth and the SVOD growth, holding the
evidence of the rare COVID events: -3.4% GDP growth and 30.41% SVOD growth.
Additionally, given the ready-to-be-sated industry as rivals have been entering, the SVOD
growth would be depicted by forecasting SVOD growth using historical performances, then
multiply the SVOD revenue with Netflix forecasted market share for Netflix forecast Revenue,
without economic context (Paloma 2021).
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
SVOD
25.96% 24.89% 30.41% 22.45% 19.13% 15.80% 12.47% 9.14% 5.81%
growth
SVOD
global 28,200 35,520 44,360 57,850 70,840 84,389 97,720 109,905 119,950 126,921
revenue
Netflix
Market 41.46% 44.47% 45.44% 43.21% 41.92% 34.69% 27.45% 20.22% 19.25% 18.28%
share
Netflix
11,693 15,794 20,156 24,996 29,698 29,273 26,828 22,223 23,088 23,195
Revenue
Netflix
35.07% 27.62% 24.01% 18.81% -1.43% -8.35% -17.17% 3.89% 0.47%
growth

Table 1: Netflix Revenue Forecast

 SVOD growth: increasing growth with historical fluctuations (Nau 2014)

 Netflix market share:

Having suspended in Russia due to the Russia-Ukraine war, Netflix would lose its Russa market
share: 2.78% (Statista 2022). Statista have forecasted Netflix 2024 market of 20% without the
event, thus, its market share should be 20%-2.78%=17.17% in 2024 (ref). From 41.82% (2021)
to 17.17% (2024), the decrease is spitted equally for 2022 and 2023. After 2024, having a
saturated market, Netflix share shall be slightly decreasing, referencing the difference from
2018-2019.
2. Key Margin & Ratio Assumptions

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2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
COGS (% of 61.72 54.82
65.51% 63.11% 56.71% 53.57% 55.66% 57.74% 57.29% 57.23%
Revenue) % %
Gross Margin (% of 38.28 45.18
34.49% 36.89% 43.29% 46.43% 44.34% 42.26% 42.71% 42.77%
Revenue) % %
SG&A (% of 17.70 18.39
18.32% 18.99% 13.22% 13.12% 18.39% 18.39% 18.39% 18.39%
Revenue) % %
Effective Tax Rate 15.66 16.76
-31.55% 3.59% 16.41% 16.76% 16.76% 16.76% 16.76% 16.76%
% %
Table 2: Key margin & Ratio
 COSG: has a historical positive-linear relationship with Revenue (OLS method):

 SG&A contains of SG&A and Advertising Expenses, and Unusual Expenses which shall
have average ratio keep constant.
 R&D is increasing as Netflix being a technology-service providers.

BALANCE SHEET:
Working capital
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
AR day =
135 119 18 20 21 21 21 21 21 21
AR/Revenue *365
Prepaid Expenses
1.45% 1.43% 2.04% 1.64% 1.64% 1.64% 1.64% 1.64%
(% of COGS)
AP day =
141 121 92 74 63 63 63 63 63 63
AP/Revenue*365
Accrued Expenses 13.25 15.32 17.39 19.46
4.11% 4.79% 6.78% 7.77% 9.11% 11.18%
(% of COGS) % % % %
Table 3: Working Capital Assumptions
 AR and AP, the average day is utilized to forecast, by multiplying back for the future
value
 Prepaid Expenses is kept as an average constant rate
 Accrued Expenses with an upward trend:

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CASH FLOW STATEMENT:

1. Operating Activities
a. Depreciation & Amortization
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Depreciation
&
Amortization
(% of COGS) 82.6% 76.8% 74.9% 77.1% 78.2% 77.9% 77.9% 77.9% 77.9% 77.9%
Amortization
(% of D&A) 1.14% 1.09% 1.11% 1.06% 1.68% 1.21% 1.21% 1.21% 1.21% 1.21%
Depreciation 98.86 98.91 98.89 98.94 98.32 98.79 98.79 98.79 98.79
(% of D&A) % % % % % % % % % 98.79%
Table 4: Depreciation & Amortization Ratios
 D&A (% of COGS) is kept constant as an average rate
 Amortization, Depreciation then be calculated based on its average constant proportion
of D&A
b. Deferred Tax
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Tax provision
= deferred
-153 44 323 525 979 638 482 248 226 198
tax + current
tax
Current Tax 56 130 417 455 780 531 402 206 188 165
Current tax
11.48 10.56 20.24 14.22 13.35 13.97 13.97 13.97 13.97 13.97
(% of net
% % % % % % % % % %
income)
Deferred tax
income/expen -208.7 -85.5 -94.4 70.1 199.5 -106.2 -80.3 -41.3 -37.6) 33.0
se
Table 5: Deferred Tax Forecast
 The Tax provision is taken from Income Statement
 Current Tax, which has an average constant rate is used as an intermediary for Deferred
Tax
 Deferred Tax then be deducted from Tax Provision and Current Tax
c. Non-cash items
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2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Leftovers
(% of Total 34.68 53.55 50.46 3.41 37.63 35.95 35.95 35.95 35.95
D&A) % % % % % % % % % 35.95%
Table 6: Leftovers forecasted rate
 Leftover rate is kept constant as an average rate
 Non-cash item is calculated as the total outflow of D&A and Leftovers.
d. Changes in Working Capital
Based on the changes each year from the Balance Sheet

2. Investing Activities
a. Capital Expenditure of Netflix only accounts for Fixed Assets Purchase
 Fixed assets purchase, with its increasing spending (negative CF) would be deducted
each year by historical fluctuations.

b. Acquisition of Business & Other Investing Cash flow

 Acquisition: In 2022, Netflix announced its Acquisition of visual effect firm Scanline
($125 million) and gaming studio Boss Fight (Netflix 2022b). We assume that the value
remains stable during the next 5 years as Netflix is also focusing on M&A activities.
 Other Investing Cash flow is kept constant as an average value

3. Financing Activities
a. Financing Cash Flow Item: only accounts for Other Financing Cashflow
This is kept as an average of historical value for 5 years
b. Issuance (Retirement) of Stock

 Stock Issuance is kept the same as 2021 value

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 Stock Retirement is $-600 million in 2021 as Netflix is implementing its Stock

Repurchase Program, which worth 4.4 billion without expiration day. Thus, we assume
that Netflix would Repurchase -600 million every 5 years
c. Issuance (Retirement) of Debt

 Debt Issuance is kept the same as 2020 value

 Debt Reduction is based on Debt Maturity in the Senior Notes (Appendix 1)
$ million 2022 2023 2024 2025 2026
Reduction -700 -400 -1,874 -1,000
Table 7: Netflix’s Debt Reduction
4. Foreign Exchange Effect:
This will be kept constant as the average of historical value, as this is unpredictable depends on
FX market fluctuation

5. Cash Interest Paid and Cash Tax Paid

These are calculated based on their proportion with Net Cash Ending
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Cash Interest
7.56 9.86 11.88 12.61 10.23 10.23 10.23 10.23 10.23
(% of net 9.26%
% % % % % % % % %
cash ending)
Cash taxes
4.02 3.44
(% of net 7.94% 3.54% 8.41% 5.47% 5.47% 5.47% 5.47% 5.47%
% %
cash ending)
Table 8: Cash Interest’s and Cash Taxes’ Proportion
 The proportions will be kept constant as the average of historical proportions.
6. Free Cash Flow:

B. Fill Up the Missing Value

BALANCE SHEET FILL UP:
1. Assets
a. Property, Plant & Equipment (PPE)
a.1 Gross PPE

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(Capital Expenditure from Cash Flow Statement)

a.2 Items of PPE
These proportion will be kept constant as average of historical proportion
% of Gross PPE 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Building gross 42% 45% 15% 16% 21% 28% 28% 28% 28% 28%
Land gross 1% 0% 1% 2% 1% 1% 1% 1% 1%
Machinery gross 49% 43% 16% 12% 12% 26% 26% 26% 26% 26%
Construction 1% 3% 4% 9% 6% 5% 5% 5% 5% 5%
Other 8% 8% 64% 61% 59% 40% 40% 40% 40% 40%
Table 9: Proportion of Each Item of PPE

b. Deferred Income Taxes

(Deferred Tax from Cash Flow Statement)

c. Other Long-term Assets

(Other Investing Cash Flow from Cash Flow Statement)

2. Liabilities:
a. Other Current Liabilities: only accounts for Customer Advances
This is following an upward trend, which is calculated based on historical fluctuations:

b. Total Debt: only accounts for Long-term Debt

(Issuance/Retirement of Debt from Cash Flow Statement)

c. Other Liabilities: only accounts for Other Long-term Liabilities

This is kept constant as the average of historical value

3. Equity
a. Common Stock:

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(Issuance/Retirement of Stock from Cash Flow Statement)

b. Retained Earning

(Net Income from Income Statement)

c. Other Equity: only accounts for Comprehensive Income
This is kept constant as the average of historical value

INCOME STATEMENT FILL-UP:

Interest Expenses and Interest Income
These are calculated based on Debt Interest Rate and Cash Interest Rate

(Total Debt from Balance Sheet)

(Net Beginning/Ending Balance from Cash Flow Statement)

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Debt
Interest -4.97% -4.98% -4.94% -4.83% -4.93% -4.93% -4.93% -4.93% -4.93%
Rate
Cash
interest 0.61% 1.30% 2.06% 0.63% 0.11% 0.94% 0.94% 0.94% 0.94% 0.94%
Rate
Table 10: Debt/Cash Interest Rate
 These Interest Rate are kept constant as average of historical rate
 Interest Expenses/Income then be calculated back with the reverse of the above
formulas

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Task 2. WACC Calculation

A. Simple WACC
The weighted average cost of capital (WACC) is a financial ratio represented by a firm's average
cost of capital from all sources, including common stock, preferred stock, bonds, and other forms
of debt. (Marshall & Thomas & Suzanne 2022).

1. Debt & Equity Ratio

2022 2023 2024 2025 2026
Total equity (E) 20,158 22,849 24,258 25,665 26,335
Total Liabilities (D) 27,752 29,167 30,687 29,676 30,820
Total Asset (V) 47,910 52,016 54,944 55,341 57,155
Equity Ratio (E/V) 42.08% 43.93% 44.15% 46.38% 46.08%
Average Equity Ratio 44.52%
Debt ratio (D/V) 57.92% 56.07% 55.85% 53.62% 53.92%
Average Debt Ratio 55.48%
Table 11. Average Debt Ratio & Average Equity Ratio of Netflix

2. Cost of debt
2022 2023 2024 2025 2026
Interest Expense (IE) 749.029 774.140 860.217 868.719 840.601
Total Liabilities (D) 27,752 29,167 30,687 29,676 30,820
Cost of Debt (IE/D) 2.70% 2.65% 2.80% 2.93% 2.73%
Average Cost of Debt ( 2.76%
Table 12: Average Cost of Debt of Netflix
3. Cost of Equity
a. Market Rate of Return and Risk-Free Rate
Government bond yields can be considered as risk-free rate of return due to it low default risk
from being backed by the government (Investopedia 2021). Therefore, we will be using the 10-
Year Treasury Constant Maturity Rate. Also, Netflix Inc’s historical stock price return will
be used to calculate the market rate of return, as it is a listed public company in the stock
market.

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Figure 1. U.S 10-Year Treasury Constant Maturity Rate between 2016-2020

(Reproduced from Federal Reserve Economic Data 2022)

The Covid-19 outbreak had sent the US into a recession (Figure 2). The bond market faced a
massive sell-off when the pandemic hit in March 2020, partially because of mutual funds
pressure (Johannes & Victoria 2021). It caused the market yield of U.S. Treasury Securities
(Figure 1) to massively decrease, which affect the accuracy of the average risk-free rate.

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Figure 2. Netflix Inc from the period May 2021 – May 2022
(Reproduced from Yahoo Finance 2022)

Moreover, Netflix Inc stock index plummeted in 2022 (Figure 2) after growing throughout the
pandemic period (Samira et al. 2020; Anja et al. 2020), which can affect the accuracy of the
market rate of return. Speculation was made like pandemic restrictions ease, increasing
competition, but the uncertainty remained due to these events being too recent.

Additionally, Inflation is another concern, as higher inflation rate will push investors to demand a
higher yield rate to compensate for the higher risk (Geert & Eric 2008). In turn, it erodes the
bond's future cash flows and damages the bond/stock prices (Margaret & Amos 2016). The US
Federal Reserve set an annual inflation target of 2% (The Fed 2020). But in 2021, it is reported
to have risen to 4.5%, therefore, an outlier that can affect the result accuracy.

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Figure 3: Inflation rate of U.S from the period 2016 - 2021

(Reproduced from World Bank 2022)
Overall, for a better accurate prediction, we shall remove data since 2020 to avoid excessive
fluctuations affecting the results.
 Average risk-free rate = 2.31%
 Average market rate of return = 3.30%

b. Beta
According to Babcock (1972), Beta is a measurement of securities volatility related to the market
rate of return. Since Netflix is one of the major companies in streaming service industry, we will
be using the industry beta value.
 Beta (5Y monthly) = 0.97 (Yahoo Finance 2022)

c. Calculating Cost of equity

Market rate of Return 3.30%

Risk Free ( 2.31%
Beta () 0.97

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Cost of Equity 3.27%

Table 13. Cost of Equity of Netflix

4. Corporate Tax (
The Corporate Tax of Netflix is 21% (TPC 2022)

5. Simple WACC Calculation

Debt ratio (D/V) 55.48%

Equity Ratio (E/V) 44.52%
Cost of Debt (IE/D) 2.76%
Cost of Equity re 3.27%
Corporate Tax (��) 21%
WACC 2.6660%
Table 14. Simple WACC of Netflix
Netflix’s WACC has been decreasing annually, from 11.86% in 2019 to 5.16% in 2021
(Gurufocus 2022a), and we are expecting it to decrease to 2.68% in the future. Lower WACC
indicated for lower risk because the company is paying less for the capital needed for an
investment before it can generate a return (Segal 2022). Comparing the 5-year average WACC
with Netflix’s major competitors (Gurufocus 2022b, c, d, e, f):
 Amazon.com Inc = 9.864%
 The Walt Disney Company = 7.52%
 Tencent = 8.798%
 Apple Inc. = 8.85%
 Google LLC = 8.072%
We can see that Netflix’s WACC is substantially lower compared to its peer, therefore, it is
expected to be safer to invest in Netflix compared to other streaming services companies in the
future (Segal 2022).

B. Modified WACC calculation

1. Fix Beta in original WACC.

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CAPM is mostly based on historical data, raising concerns about its suitability for long-term
investment (Tao et al. 2021).
Over time, beta tends to regress toward 1.0. (Pinto, Robinson & Stowe 2019). Rather than the
raw beta, beta reflects the average systematic risk, "Beta smoothing" correction is used (Boyle,
Guthrie & Murray 2021). A beta of 0.98 will indicate the movement of systematic risk in the
future.

Annema and Goedhart (2003) presented a beta that eliminates the influence of the high-tech
bubble distortion in the market. Telecommunications, media, and technology sectors dominated
the market, resulting in biased beta for sectors. Although the phenomenon is not very vivid, the
corporation should anticipate a reduced beta because Indonesia is a significant target market for
investments in telecommunications, media, and technology (Lee & Wei 2021).

2. Recalculating Cost of Equity:

Market rate of Return 3.30%

Risk Free ( 2.31%
Beta () 0.98
Cost of Equity 3.28%
Table 15. New Cost of Equity of Netflix
3. Modified WACC:

Debt ratio (D/V) 55.48%

Equity Ratio (E/V) 44.52%
Cost of Debt (IE/D) 2.76%
Cost of Equity re 3.28%
Corporate Tax (��) 21%
WACC 2.671%
Table 16. Modified WACC of Netflix
The WACC is 2.671%, 0.005% higher than initial WACC, which indicates that investors
anticipate a bigger return since investments are more susceptible to market fluctuations over
time.

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Task 3. Value of Netflix as of December 2022

Discounted Cash Flow is based on to measure the return value of the investment using the time-
adjusted input: WACC. Netflix continuous activities require content license renewal after
certain periods; thus, Terminal Value is necessary for a reliable valuation, with perpetual growth
rate of 0.8% after 2026, which is assumed based on the reason of maturing SVOD industry
(Finbox 2022). The Cash flows are inputted as Cash and Cash equivalents of each year (Netflix
2022).

Discounted cash
1 2 3 4 5 5
flow
2022 2023 2024 2025 2026 Terminal value
Cash Flow 5,152 3,976 1,280 -2,598 -6,606 -355,892
Discount factor 1.03 1.05 1.08 1.11 1.14 1.14
PV of Future Cash
5,018 3,772 1,183 -2,338 -5,790 -311,945
Flow
WACC 2.67%
Perpetual Growth 0.80%
Value as of
December 31st, -310,101
2022
Table 17: Netflix’s Discounted Cash Flow

The value of Netflix (December 2022) is $-310,101million. Thus, we could conclude that this is
the worst case of Netflix, of not being able to generate any profit in the upcoming years, in which
discourages investors.

Task 4: Risk-Return of Netflix’s shares

Aside from Netflix, the prominent and long-standing brands in the Technology & Entertainment
business are The Walt Disney Company and Warner Bros (Liu, 2020).
Attributes Disney Warner Bros Netflix
Mean Average (%) -0.004 -0.005 > -0.010

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Standard Deviation (Risk) 0.021 0.035 < 0.053

Range 0.096 0.138 < 0.428
Minimum -0.056 -0.078 > -0.351
Maximum 0.040 0.061 < 0.076
Table 18: Netflix's rate of return descriptive analysis compared to peers.
Netflix's maximum and minimum rates are higher than competitors', implying that returns
fluctuate widely. The most notable was a decline of up to 35% in Netflix shares. This
demonstrates that this is an exceptionally dangerous stock. Standard deviation is a measure of
risk based on the deviation of variable from the mean (Pamela & Wu 2022). Netflix's SD is more
than twice higher than Disney and Warner Bros, indicating its fluctuated stock compared to its
peers (Figure 4).
Based on normal distribution, there is 60% possibility that Netflix’s return will be less than 0%,
which possesses extremely high risk of loss compared to Disney and Warner Bros of
57%. Moreover, Netflix's return is volatile far away from its mean, different from its peers-
around the mean. Because normal analysis cannot track the stock's moment, the return is highly
unexpected, posing a large risk for short-term trading (Bahcivan & Karahan 2022).

DIS, NFLX and WBD Normal distribution of daily rate of returns

Disney
Netflix
Warner Bros

-0.4 -0.3 -0.2 -0.1 0 0.1 0.2

Figure 4: Normal distribution of daily rate of returns of Disney, Netflix, and Warner Bros.
(Reproduced from Investing.com 2022)

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The Beta coefficients of Netflix, Disney and Warner Bros being 0.97, 0.98 and 0.88, respectively
(Finbox 2022) indicates that they are all less volatile than the general market because the Beta is
less than 1 (Ayub et al. 2022). In general, the risk level of Netflix stock is greater than that of its
peers regarding the same industry, but they are still relatively safe compared to the market.

The Security Market Line (SML) is a tool for calculating the risk-return connection for
individual stocks, with (SML), risk is only systematic risk (β) (Corelli et al. 2021). With a risk-
free rate of 2.31%, market return of 3.3%, E(RNetflix) is 3.27%.

With the current price (P0) is $186.51, expected price (P1) in the end of year is $331, dividend
forecast 2022 (d1) is also $0 as previous years (CoinpriceForecast 2022). The expected rate of
return on equity has been calculated to be equal to

The required rate of return E(RNetflix) = 3.27% is less than the actual/forecasted rate of return
r(Netflix) = 76.93%, the equity holder will buy the stock, causing the price to rise, besides, it is clear
from the above equation that an increase in will cause the actual/forecasted rate of return to fall
until it equals the required rate of return (Donelson & Hopkins 2016).

Task 5: Critical analysis

A. Boost up reducing borrowed accounts with providing cheaper packages
The critical issues of Netflix slow revenue growth, which shall be negative in upcoming years, is
its loss of subscribers: >200,000 in Q1-2022 (Nicole 2022). This is due to the fiercer competition
in this SVOD industry, with strong competitor regarding DisneyPlus, Amazon Prime, HBO Max,
etc., together with the case of borrowing accounts, ranked highest of 52% (Figure 5). Netflix has
projected that this people could reach 100million, which could significantly drag down Netflix’s
performance, thus lowering investors’ returns (Molly 2022).

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Figure 5: Rate of Using Borrowed Account in SVOD industry (Dawn P 2021).

Netflix has considering two options: further increasing the price to capture more revenue, but
loss of audiences; or provide cheaper package by supporting advertisement (Keck 2022,
Spangler 2022). Apparently, the first option could generate more short-run revenue, but with the
loss of audiences amid harsh competition, Netflix should not consider this strategy (Newman
2022). Besides, the 2nd option has been taken by Disney and Hulu and proves its sufficient
outcomes for boosting revenue (Brett 2022, Black 2019). Also, people are willing to pay less and
won’t mind advertising (Figure 6). Therefore, Netflix should boost is minimizing borrowed
account programs, together with provide cheaper prices to attract more revenue and audiences in
the long term to attract global investors (Chris 2021, David 2021).

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Figure 6: Viewers attitudes toward ad-supported video (Blake 2019).

B. Acquisition of other popular film studio

The intensely competitive market, as previously said, is one of the things that causes Netflix to
lose consumers (Nicole, 2022). In 2019, Walt Disney purchased a 33 percent stake in Hulu-a
streaming revice and gained complete control of the company (Laura, 2019). Hulu generated
$4.4 billion in revenue in 2020 (David 2022), with over 39 million users and ranking in the top 8
streaming companies (Figure 7). This M&A strategy supports Walt Disney a lot by reducing
costs, expanding market share, increasing revenue, or creating new growth opportunities (Joe,
2021). Thus, Netflix should consider investing more in M&A as there are many of immense

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potential film studios that have massive fans and subscribers such as Sony pictures which have
most iconic and favorite characters such as Spider-man, Lionsgate with popular film John Wick
and Discovery with a great film technique that Netflix can utilize (The Entertainment Strategy
Guy, 2021). What is more, by using the M&A campaign not only increase revenue or expanding
market but also reduce labor cost, especially indirect employment and raise the level of
technology that firms can leverage each other's technology or techniques to create a competitive
advantage (Adam, 2021).

Figure 7: Ranking of Streaming Firms according to users’ quantity (David 2022)

C. Create and Distribute Non-fungible Token (NFT)

The SVOD industry is in the age of maturing, therefore, besides reinforcing the streaming
activities, Netflix should consider an additional revenue stream (Sperling 2022). Non-fungible
Token (NFT) should be created as a product of Netflix, as this has been successfully done by its
competitors: Warner Bros’ “Matrix” avatar worth $5 million, Disney’s “Golden Moment”,
Lionsgate’s “Saw” with more than $500,000 in sales (Spangler 2021). As people are becoming
more active on digital than physical world, with a closer approach to metaverse and their
preference for exclusive digital assets, the demand for NFT is incredibly increasing (Deloitte
2022). The trading volume of NFT has risen 222% within just the 1st quarter of 2022, from

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$16.94 billion to $54.58 billion, in which represents a dynamic, liquid market (Nicenko 2022).
Netflix could release its NFT in the form of character avatar, iconic film moments which are
exclusively designed for each NFT (Spangler 2021). Taking Disney as referenced, it boosted the
SVOD sales through coupons provided for NFT purchase: 3-12 months credit for DisneyPlus,
Netflix could provide the same programs for boosting its sales (ibid.). However, while NFT has
cerfiticates and contracts between suppliers and customers, it has not earned a verification
(Nahar 2021). This is quite ambiguous for long-term development, yet Netflix should consider
this as a short-term revenue stream, with low set-up cost but could help catching up with the
competitors as well as the on-trend demands, together with maintaining its sustainable
development in SVOD and M&A strategies (ibid.)

TASK 6. INDUSTRY TALK

Initially, the role and dealing method of an Investment Bank is discussed. In general, an
investment bank serves as a go-between for a seller (business) and a buyer (investor). The
dealing process is divided into two stages: the first is when the Investment Bank researches
potential companies and the market before presenting it to potential investors, and the second is
when the Bank assesses and advises on the elements of the offer (including legal documentation
presented by the legal counsel and advisor) before finalizing the accepted price and terms of the
deal from both parties and collecting the advisory fee. Secondly, the guest speaker covers
valuation techniques: market approach, which is a rapid search of accessible market information,
and income approach, which uses the Discounted cash flow (DCF) method to analyze the
company's future cash flow and prospective growth. Finally, we discuss in depth the valuation of

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Enterprise value vs. Equity value, where under Commercial sense theory, we as an investor of a
corporation must assume that we will also pay the enterprise value when we pay the equity value
to obtain a share of a company.

There are two closing mechanisms: Lock Boxes and Completion Account.
A locked box instrument, according to Lewis Silkin, is an elective evaluation mechanism for the end
accounts. The "locked box" system's primary purpose is to provide guarantee on the money thought at the
location where the SPA (Sale and Purchase Agreement) is agreed upon. With a Locked Box system, the
most recent value esteem adjustments are applied to an asset report prepared at a date prior to completion,
which is known as the 'locked box monetary record.' Locked boxes are very common in Europe. This
might be because locked box components lend themselves well to multibidder deal processes: they avoid
time spent post-exchange on completion systems and provide certainty for the two parties on the final
value esteem at consummation (Figure 8).

Figu
re 8: Mechanism of Locked Box

According to Dcslegal, completion accounts are simply a collection of documents generated with the
purpose of the deal/procurement and then used as a rationale for adjusting the pricing. The difference will
be noticed in how specific figures in the final accounts are compared to the same objective numbers that
were agreed upon prior to fulfillment. The "underlying" acquiring cost in a Completion Accounts
circumstance is specified in the agreed-upon Share Purchase Arrangement (or SPA). In any event, the
"last" purchase cost is only determined based on the true monetary record of the goal element as of the
transaction's completion date.The Completion Accounts must at the very least disclose the net resources
of the acquired business as of the completion date. They typically include a closing balance sheet and a

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profit and loss account that demonstrates the outcomes for the period beginning with the most recent
arrangement of verifiable monetary records and ending on the date of fruition (Figure 9).

Figure 9: Mechanism of Completion Accounts

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Appendix

Appendix 1: Senior Notes of Debt Reduction (Netflix 2022a)

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