The Effects of Working Capital

In the analysis above, we assumed that Bookscape would have to maintain additional inventory for its on-line book service. If, instead, we had assumed that Bookscape could use its existing inventory (i.e.. from its regular bookstore), the cash flows on this project a. will increase b. will decrease c. will remain unchanged Explain.

Illustration 5.5: Estimating Incremental Cash Flows: Disney Theme Park

The theme parks to be built near Bangkok, modeled on Euro Disney in Paris, will include a "Magic Kingdom" to be constructed, beginning immediately, and becoming operational at the beginning of the second year, and a second theme park modeled on Epcot Center at Orlando to be constructed in the second and third year and becoming operational at the beginning of the fifth year. The following is the set of assumptions that underlie the investment analysis:

1. The cash flows will be estimated in nominal dollars, even thought he actual cashflows will be in Thai baht.

2. The cost of constructing Magic Kingdom will be $3 billion, with $ 2 billion to be spent right now, and $1 Billion to be spent one year from now. Disney has already spent $0.5 Billion researching the proposal and getting the necessary licenses for the park; none of this investment can be recovered if the park is not built.

3. The cost of constructing Epcot II will be $ 1.5 billion, with $ 1 billion to be spent at the end of the second year and $0.5 billion at the end of the third year.

4. The revenues at the two parks and the resort properties at the parks are assumed to be the following, based upon projected attendance figures until the tenth year and an expected inflation rate of 2% (in US dollars). Starting in year 10, the revenues are expected to grow at the inflation rate. Table 5.4 summarizes the revenue projections:

Table 5.4: Revenue Projections: Disney Bangkok


Magic Kingdom

Epcot II

Resort Properties


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