Info

$ (38,893)

This project has a net present value of -$38,893, suggesting that it is a project that should not be accepted, based on the projected cash flows and the cost of capital of 22.76%.

Illustration 5.12: NPVFrom The Firm's Standpoint - Disney's Theme Park in Bangkok

In estimating the cash flows to discount for Disney's theme park in Thailand, the first point to note when computing the net present value of the proposed theme park in Thailand is the fact that it has a life far longer than the ten years shown in exhibit 5.2. To bring in the cash flows that occur after year 10, when cash flows start growing at 2%, the inflation rate forever, we draw on a present value formula for a growing perpetuity (See appendix 1):

Present Value of Cash Flows after year 10 = FCFFn/(WACC - g)

The cost of capital of 10.66% is the cost of capital for Bangkok theme park that we estimated in illustration 5.2. This present value is called the terminal value and occurs at the end of year 10.

Table 5.14 presents the net present value of the proposed theme parks in Thailand are estimated using the cash flows in nominal dollars, from exhibit 5.2, and Disney's cost of capital, in dollar terms, of 10.66%.

Table 5.14: Net Present Value of Disney Bangkok Theme Park

Year

Annual Cashflow

Terminal Value

Present Value

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