Euro Disneyland Case Study
Euro Disneyland Case Study
1. INTRODUCTION: The primary objective of this case analysis is to evaluate the proposed Euro Disneyland (EDL) project by applying Capital Budgeting techniques such as Net Present Value, analyze financial and economic risks, measure exposures of Euro Disneyland (EDL) such as economic exposure, transaction exposure and translation exposure, and develop strategies to mitigate these exposures. The case findings reveal that Disney should invest in Euro Disneyland taking into account the benefits arising out of French government subsidies and …
2. BACKGROUND: In 1984, Disney management decided to develop a European theme park On March 24, 1987, the Walt Disney Company entered into the “Master Agreement” with the Republic of France to create and operate Euro Disneyland in France. This was followed by formation of Euro Disneyland SCA and the conclusion of an agreement with the SNCF (the French national railway company) to provide TGV (the French high-speed train) service to Euro Disneyland beginning in June 1994. The total cost of the project was expected to be $2.5 billion based on exchange rate of FF6=$1. The Disney’s risk appears to be modest. Total investment of Disney is $350 million in planning the park. Disney will invest $145 million (49% 0f total equity) and public investors will invest $ 1 billion (51% of the total equity) into shares of Euro Disneyland SCA. Despite a minority shareholder, Disney can still control management. When stocks start trading on Paris Bourse, Disney stake will be valued at $1 billion which is an increase of $855 million in value. Disney has rights to buy 4800 acres of land at the rate of 7500 per acre as compared to $750000 per acre. Disney will collect $35 million royalties on sales of food, admission tickets and souvenirs. The inducements from French Government to Disney include a loan of FF 4.8 billion at an interest rate of 7.85% in contrast to normal commercial rate of 9.25 and an accelerated
1. INTRODUCTION: The primary objective of this case analysis is to evaluate the proposed Euro Disneyland (EDL) project by applying Capital Budgeting techniques such as Net Present Value, analyze financial and economic risks, measure exposures of Euro Disneyland (EDL) such as economic exposure, transaction exposure and translation exposure, and develop strategies to mitigate these exposures. The case findings reveal that Disney should invest in Euro Disneyland taking into account the benefits arising out of French government subsidies and …
2. BACKGROUND: In 1984, Disney management decided to develop a European theme park On March 24, 1987, the Walt Disney Company entered into the “Master Agreement” with the Republic of France to create and operate Euro Disneyland in France. This was followed by formation of Euro Disneyland SCA and the conclusion of an agreement with the SNCF (the French national railway company) to provide TGV (the French high-speed train) service to Euro Disneyland beginning in June 1994. The total cost of the project was expected to be $2.5 billion based on exchange rate of FF6=$1. The Disney’s risk appears to be modest. Total investment of Disney is $350 million in planning the park. Disney will invest $145 million (49% 0f total equity) and public investors will invest $ 1 billion (51% of the total equity) into shares of Euro Disneyland SCA. Despite a minority shareholder, Disney can still control management. When stocks start trading on Paris Bourse, Disney stake will be valued at $1 billion which is an increase of $855 million in value. Disney has rights to buy 4800 acres of land at the rate of 7500 per acre as compared to $750000 per acre. Disney will collect $35 million royalties on sales of food, admission tickets and souvenirs. The inducements from French Government to Disney include a loan of FF 4.8 billion at an interest rate of 7.85% in contrast to normal commercial rate of 9.25 and an accelerated