Tokyo Disneyland Tokyo Disney Sea Ning Jung Chiu

Tokyo Disneyland & Tokyo Disney. Sea Ning Jung, Chiu Ji, Qiu You Zhong, Zhang

Agenda • • • Case Overview Exhibit 7 Comparsion Calculations Methods Comparsion Differences in Cultures Conclusion

Background • Japanese Oriental Land Crop. (OL) & Walt Disney Company (WD) • 1979 WD signed the license contract of Tokyo Disneyland with OL. • Tough negotiation: • Weak financial position of WD • WD wished to maximize revenue • Lincensing fee 10% on admission fee and 5% on sales of food, beverages and merchandise. • Tokyo Disneyland opened in 1983. • 1996 OL's listing on Tokyo Stock Exchange. IPO closing price exceed its offer by 9%.

Disney. Sea Park • Growth slow down: high percentage of repeat customers. • 1997 WD proposed a new project: Disney. Sea Park. • OL facing unfair terms provided by WD. • OL needed to prepare for the hard negotiation • Make 7 years projection and sensitivity analysis. • Creating depreciation, debt cost, financial projections with and without project and income and cash flow schedules for the potential project. • Japanese method vs US method

Exhibit 7 -Original Incomes and Cash Flows From The New Project, 1998 -2004 Without the Project With the Project unit: US$ 1 Depreciation Income Cash Flow Depreciation million 1997 93. 90 134. 70 228. 60 93. 90 ( Actual ) The New Project Income Cash Flow 134. 70 228. 60 Depreciation Income Cash Flow Fixed Assets - - - 1998 93. 90 138. 70 222. 60 93. 90 138. 50 215. 10 - 1999 93. 90 142. 80 226. 70 93. 90 142. 80 219. 00 2000 93. 90 147. 00 230. 60 263. 30 22. 50 284. 20 169. 40 (124. 50) 44. 90 3, 219. 80 2001 93. 90 151. 50 234. 80 263. 30 29. 90 291. 20 169. 40 (121. 60) 47. 90 3, 050. 30 2002 93. 90 156. 00 239. 10 263. 30 134. 40 388. 30 169. 40 (21. 60) 147. 80 2, 880. 90 2003 93. 90 160. 60 243. 20 263. 30 201. 60 450. 80 169. 40 41. 00 210. 40 2, 711. 40 2004 93. 90 165. 60 247. 50 263. 30 240. 90 487. 70 169. 40 75. 30 244. 70 2, 541. 90 -

Exhibit 7 -New Incomes and Cash Flows From The New Project, 1998 -2004 Without the Project With the Project unit: US$ 1 Depreciation Income Cash Flow Depreciation million 1997 93. 90 134. 70 228. 60 93. 90 (Actual) 232. 40 1998 93. 90 138. 70 93. 90 (222. 60) 236. 70 1999 93. 90 142. 80 93. 90 (226. 70) 240. 90 2000 93. 90 147. 00 263. 40 (230. 60) 245. 40 2001 93. 90 151. 50 263. 40 (234. 80) 249. 90 2002 93. 90 156. 00 263. 40 (239. 10) 254. 50 2003 93. 90 160. 60 263. 40 (243. 20) 259. 10 2004 93. 90 165. 60 263. 40 (247. 50) The New Project Income 134. 70 138. 50 142. 80 22. 50 29. 90 134. 40 201. 60 240. 90 Cash Flow 228. 60 232. 40 (215. 10) 236. 70 (219. 00) 285. 90 (284. 20) 293. 30 (291. 20) 397. 80 (388. 30) 465. 00 (450. 80) 504. 30 (487. 7) Depreciation Income Cash Flow Fixed Assets - - - 169. 46 (124. 50) 169. 46 (121. 60) 169. 46 (21. 60) 169. 46 41. 00 169. 46 75. 30 - 45. 00 (44. 90) 47. 90 (47. 90 ) 147. 90 (147. 80 ) 210. 50 (210. 40) 245. 20 (244. 70) 3, 220. 80 (3, 219. 80) 3, 050. 34 (3, 050. 30) 2, 880. 88 (2880. 90) 2, 711. 42 (2, 711. 40) 2, 541. 96 (2, 541. 90)

Exhibit 7 -New Incomes and Cash Flows From The New Project, 1998 -2004 Without the Project With the Project unit: US$ 1 Depreciation Income Cash Flow Depreciation million 1997 93. 90 134. 70 228. 60 93. 90 (Actual) 232. 40 1998 93. 90 138. 70 93. 90 (222. 60) 236. 70 1999 93. 90 142. 80 93. 90 (226. 70) 240. 90 2000 93. 90 147. 00 263. 40 (230. 60) 245. 40 2001 93. 90 151. 50 263. 40 (234. 80) 249. 90 2002 93. 90 156. 00 263. 40 (239. 10) 254. 50 2003 93. 90 160. 60 263. 40 (243. 20) 259. 10 2004 93. 90 165. 60 263. 40 (247. 50) The New Project Income 134. 70 138. 50 142. 80 22. 50 29. 90 134. 40 201. 60 240. 90 Cash Flow 228. 60 232. 40 (215. 10) 236. 70 (219. 00) 285. 90 (284. 20) 293. 30 (291. 20) 397. 80 (388. 30) 465. 00 (450. 80) 504. 30 (487. 7) Depreciation Income Cash Flow Fixed Assets - - - 169. 46 (124. 50) 169. 46 (121. 60) 169. 46 (21. 60) 169. 46 41. 00 169. 46 75. 30 Exchange Rate, Tax, Non-financial factors - 45. 00 (44. 90) 47. 90 (47. 90 ) 147. 90 (147. 80 ) 210. 50 (210. 40) 245. 20 (244. 70) 3, 220. 80 (3, 219. 80) 3, 050. 34 (3, 050. 30) 2, 880. 88 (2880. 90) 2, 711. 42 (2, 711. 40) 2, 541. 96 (2, 541. 90)

Calculations-NPV, IRR • US method • Discount rate = 5. 65% • Initial Investment is from Exhibit 3, which is $3, 389. 30 million.

Calculations-AAR • Japanese method • Average Investment = Average Fixed Assets. Book Value / T years • The five-year projection period, so T years = 5

Calculations-ACFR • The new method – compromise between US and Japanese methods. • Assuming project period = 5 years • Initial Investment is from Exhibit 3, which is $3, 389. 30 million.

Methods Comparsion • NPV = $ 473. 91 > $ 0 • IRR > hurdle rate 5. 65% • AAR rate = -1. 05% < 0 • ACFR rate = 19. 11% > 5. 65% Accept Reject Accept

Methods Comparsion U. S. Method (NPV, IRR) Japanese Method (AAR) Compromise (ACFR) Time Value Yes No No Terminal Value Yes No Yes BV added as TV Main fators CF Net Income CF Calculations DCF Average • Japanese method ignores all cash flow after the operation period, and it does not account the salvage value.

Differences in Cultures United States Japan Anglo. American type Japanese. German type Shareholders Corporate wealth & all stakeholders • Management NPV, IRR AAR

Differences in Cultures United States Agents/Management interest Japan Stakeholders’ interest Short-term value maximization Long-term value maximization Mostly temporary employment Mostly permanent employment

Final decision Long-term target No time factor Interest of all stakeholders

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