1. Tokyo Disneyland and the DisneySea Park
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

2. Agenda · INTRODUCTION TO DISNEYSEA PARK PROJECT
· FINANCIAL ASSUMPTIONS
· CAPITAL BUDGETING TECHNIQUES
· COMPARISONS
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

3. Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

4. The Original Tokyo Disneyland
· April Oriental Land Corp. (OL) signed a license agreement with the Walt
Disney Company (WD).
10% on admission fees and 5% on food beverages and novelty
goods.
· December The construction of Tokyo Disneyland began in Maihama District.
· April Tokyo Disneyland opened its doors for business.
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

5. The Competitor: Mitsubishi Estate Group
· They offered WD 2450 acres in exchange
for WD’s construction of Disneyland
· The two companies ended up with no agreement.
· OL accepted the conditions knowing that it would
be hard for them to operate profitably
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

6. Success of Tokyo Disneyland
· the number of visitors never went below 10 million per year;
they peaked in 1998 with 17,45 million
· 75 % of the attendance was from repeated visitors
· 70 % of the park’s visitors were from neighbourhoods around
Tokyo
· 7000 ¥（$59.31 US）as the estimated average of expenses per
visitor
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

7. Customers Issue: New Attractions to Maintain Repeat
· Most of customers were repeat customers. However, there was concern that customers would eventually get bored with the existing attractions and facilities, resulting in a severe shortage of customers.
· OL received an inquiry from their licenser, the Walt Disney Company, suggesting to build a new entertainment park: the DisneySea Park.
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

8. Basic Information about the New Project
· Geographical & Cultural Basis:
Island country with attachment to sea
· Target Audience: adults who had been
children when Tokyo Disneyland was
introduced.
· Large Investment: ￥400 billion ($3.4
billion)
· Form of Cooperation: WD hoped to
continue the licensing fee format while OL
strongly opposed it.
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

9. New Project: DisneySea Park
Initial investment: ￥400 billion (US $ 3.4 billion)
OL’s total assets: ￥ billion (US $ 1.77 billion)
Annual EBT: ￥28.32 billion (US $ 0.24 billion)
Major Concerns: how long it would take for the DisneySea Park to start
generating profits;
if the company’s current profit earning capability would
be able to sustain the investment period
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

10. Position of Various Stakeholders
Mitsui Real Estate Group (MREG):
· critical of the long contract term
· objected to 10% license fee
· concerns about the risk-sharing on the
part of WD.
Industrial Bank of Japan (IBJ):
· shifted its lending targets and willing
to lend to OL.
· total bank loans amounted to ￥195
billion (US $ 1.65 billion)
· closely involved in companies’ internal
affairs.
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

11. Position of Various Stakeholders
Position of Various Stakeholders
Chiba prefecture (Landlord):
· thought OL proposed an exaggerated
request of land.
· eventually granted 750,000 tsubo of land.
· public welfare and consideration of
employment.
Stockholders at Tokyo Stock Exchange:
· OL was listed on the Tokyo Stock Exchange
In 1996 with its closing price on the first day
of IPO being ￥8,850 a share, exceeding 9%
of its offered price.
· Later evaluation disappointing: stock price
of ￥8,000 than initial ￥8,055
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

12. Financial Assumptions without the New Project
Number of visitors: remain the same Admission fees: increase by 2% annually
Operating costs: 67% of sales; Administrative: 7% of sales;
Other Expenses: 4% of sales Tax Rate: 43%
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

13. Financial Assumptions with the New Project
Number of visitors: 30% increase in 2002, 10% increase in 2003 and 2004
Admission fees: 2% increase in the following four years; 15% in 2002; 10% 2003; same in 2004
Operating costs other than depreciation, administrative, other expenses, tax rate: same assumptions
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

14. Depreciation Assumptions
Depreciation Conducted using straight-line method over 20 years
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

15. Difference in Interest Payment
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

16. Projected Income and Cash Flow of the
New Project
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Yiming Xie
Yutong Xiang
Xinyue Luo

17. Capital Budgeting Techniques
Net present value (American NPV)
Internal rate of return (American IRR)
Average accounting return (AAR)
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

18. Net Present Value
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

19. Net Present Value WACC=5.65% Mijia Zuo Yiming Xie Yutong Xiang
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20. Terminal Value
Terminal value represents all future cash flows in an asset valuation model. This allows models to reflect returns that will occur so far in the future that they are nearly impossible to forecast.
Terminal value = Cash flow of the fifth year / discount rate
Total value= the terminal value+the net operating cash flow(5th year) =4581.9
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

21. Initial Investment
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Yiming Xie
Yutong Xiang
Xinyue Luo

22. Net Present Value
Together with the initial investment in 2000 and the terminal value, the net cash flow was presented in the table below. It was calculated by adding income after tax with depreciation. A five-year cash flow for the period 2000–2004 was projected, of which the summary was as follows:
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

23. Net Present Value IRR-----8.55% NVP------446.04 $million Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

24. Average Accounting Return
We need 3 steps to calculate AAR:
step 1:Determining average net income
step 2:Determining average investment (book value)
step 3:Determining average accounting return
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

25. Average Accounting Return
Step 1:
If we assume the project has a useful life of 20 years, based upon our income projection in the cash flow, the average net income over the next five years should be:
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

26. Average Accounting Return
Step 2:
The average value of the total investment over the five years for OL is the average of the projected fixed assets (book value) of each of the five years:
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

27. ARR= Average Accounting Return Step 3: Mijia Zuo Yiming Xie
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Xinyue Luo

28. Accept or Reject? NPV - Yes 445.8 Million > 0 IRR - Yes
8.55% > Hurdle Rate 5.65%
AAR - No
-1.05% < 0
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

29. Different Decisions NPV and IRR Best approaches established in US
CFs are used
The time value of money is accounted
AAR
Common method used in Japan
No depreciation expense added
CFs after operating period are not accounted
No salvage value
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

30. A Combined Method
ACFR = (average cash flow + BV of fixed assets at the end of project) / initial investment
Considers both cash flow and terminal value of the project
Result: ACFR = 19.1% > accept project
Mijia Zuo
Yiming Xie
Yutong Xiang
Xinyue Luo

31. Difference in Corporate Governance
Maximizing shareholder wealth
Emphasis on short-term interests
Open to change
Maximizing stakeholder wealth
Emphasis on long-term interests
Adhere to traditional, not open to change
American
Japanese
NPV
AAR
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Yiming Xie
Yutong Xiang
Xinyue Luo

32. Effect on Metric Choice
Anglo-American
Japanese
Maximize shareholders wealth
Maximize return of each project
Emphasis short-term interest
Focus on cash flow of the project
Maximize stakeholders wealth
Maximize corporate net income
Emphasis long-term interest
Focus on net income of the company
Use NPV
Use NPV
Use AAR
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Yiming Xie
Yutong Xiang
Xinyue Luo

33. &