From 1998-2006 there were four large, well-funded competitors in the regional theme park industry. In order: Six
Question:
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From 1998-2006 there were four large, well-funded competitors in the regional theme park industry. In order: Six Flags, Cedar Fair, Paramount Parks, and Busch Entertainment. Of these, Cedar Fair was regarded as having the best operating team.
In March 2004, Cedar Fair bought Six Flags Worlds of Adventure (the troubled park in Ohio that doomed Six Flags) for $145 million. Cedar Fair shut it down, presumably to remove a competitor to its flagship park (Cedar Point, only 70 miles away).
In June 2006, Cedar Fair bought Paramount Parks for $1.24 billion. Presumably, Cedar Fair overpaid because they thought they could run the parks better than Paramount and extract more profit from them. They quickly found out that this was a false assumption, and that Paramount actually had been an excellent operator. This made Cedar Point massively overleveraged heading into the recession.
The Beta of Cedar Fair in 2008 is 0.78, and the standard deviation of annual returns is about 25%.
Cedar Fair?s 2008 annual report is attached here. Financial statements are on pages 34-38, Debt Schedule is on page 49, previously contracted CapEx requirements are on page 29, and EBITDA calculation is on page 17.
Myassignment is to write a report answering the following questions. I must submit an Executive Summary (1/2 page ? 1 page long), and you must include appendices with all of your calculations.
- 1) Determine a sustainable debt load for Cedar Fair as of the end of 2008.
- 2) How do these measures compare to the actual level of debt? Is the firm at risk of becoming insolvent? Pay special attention to the terms of the credit agreement (page 29).
Iwill primarily be graded on the Executive Summary.
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