I just need someone to look over my work for the following questions Calculate these values, and please show your work: 1/ the new project valuation using the Japanese capital budgeting technique (average accounting return method) 2/ the terminal value for DisneySea Park to be used for the American methods 3/ NPV for the Tokyo DisneySea Park using data from Exhibit 7 4/ capital budgeting using the average cash flow return (ACFR) method Answer: The new project valuation using the Japanese capital budgeting technique (average accounting return method) DisneySea Park Project Valuation Using Japanese method AAR: Average Accounting Return = Average Net Income/Average Investment Features: (1) Use "average net income". Sum net income / T years (2) No time factor, future values are not discounted. (3) Terminal value is not taken into consideration. (4) "Investment" is the average of the fixed assets (book value). Sum fixed assets (book value) / T years. Using data from Exhibit 7, average income for the new project from 2000 to 2004 can be calculated as followed: Average income =((-124.5) + (-121.6) + (-21.6) + (41) + (75.3))/5= -30.28 millions Also from Exhibit 7, average investment for the new project from 2000 to 2004 can be calculated as followed: Average investment = (3219.8 + 3050.3 + 2880.9 + 2711.4 + 2541.9)/5= 2880.86 millions Therefore: Average Accounting Return = -30.28/2880.86= -1.05% The terminal value for DisneySea Park to be used for the American methods The Tokyo DisneySea Park is an expansion of the existing Tokyo DisneyLand project, hence the marginal contribution of this new investment can only be projected. To find the anticipated cash flow for this new project we will find the difference between the projections of the new project and the projections without the new project (represented by Exhibit 7 using the data from Exhibit 5 and Exhibit 6). Normally, terminal value is calculated using the following formula: Terminal Value = FCFn (1 + gFCF) /WACC - gFCF However, OL's capital budgeting model is based on projections of sales growth, the profitability ratio and interest rates. Therefore, OL's estimation of the terminal value of the project beyond the five-year period projection can be calculated using the capitalization formula as followed: Terminal Value = Cash flow of the fifth year/Discount rate Using the data from Exhibit 7, we have: V5 = FCF5Discount rate= 244.70.0565= $4,330.97 million The Net Present Value for Tokyo DisneySea Park using data from Exhibit 7. To calculate the NPV for Tokyo DisneySea Park, it is imminent to apply the Time Value of Money the data given in Exhibit 7. Because this analysis would have been conducted in 1997, the construction of the project would not occur for another 3 years. OL had decided to use a hurdle rate, or the weighted cost of capital, of 5.65% due to the huge anticipated risks for the project. These are important factors to remember when calculating the timing of the cash flows. Formula for NPV is as follows: NPV = -initial investment + t=1TExpected before-tax Cash flow in year t (1-tax rate)/( 1 + weighted average cost of capital)time When comparing the projected incomes from exhibit 5 and 6 with exhibit 7, tax expenses had already been deducted and therefore the cash flows from exhibit 7 would not need to be further deducted for taxes. Exhibit 7 shows two projections of cash flow, one accounting for the expansion with the project and the other without. The difference between the two projections represent the anticipated cash flow of the new project. Next we apply the time value of money to the projected cash flows from 1999-2004 as so: NPV = -3400 + 44.9(1+0.0565)^1+47.8(1+0.0565)^2+147.8(1+0.0565)^3+210.4(1+0.0565)^4+244.7(1+0.0565)^5+4330.97/(1+0.0565)^5 = 455.70 mil IRR (Internal Rate of Return) is defined as: C0= CF1(1-r)/(1+IRR)t This method features: (1) Use the "cash flow". (2) Time factor (DCF method). (3) Terminal value is added. From the IRR formula and the data above, the IRR = 8.45% A new method (average cash flow return method) formula: The formula needed would be A+BC, where A = Average cash flow (sum of cash flow/T years) B = Book value of fixed assets at end of project/ T years C = Initial Investment Which would give us the following equation: AVCF =(44.9+47.8+147.8+210.4+244.7)+2541.9/5/3400= $19.1million