Walt Disney

2055 Words Apr 29th, 2008 9 Pages
Executive Summary Tokyo Disneyland was opened to the public on April 15, 1983. This amusement park was owned and operated by an unrelated Japanese corporation. The Walt Disney Company received royalties, paid in Yen, on certain revenues generated by Tokyo Disneyland. This new overseas business venture was bringing some concern about the foreign exchange risk to Disney. The management team at the Disney has been considering hedging future Yen inflows from Disney Tokyo since 1985. Mr. Anderson, the director of finance at The Walt Disney Company, focused his attention on a possible 15 billion ten-year term loan with an interest rate of 7.5% paid semiannually. On the other hand, Goldman Sachs, who had been working with …show more content…
Net income totaled $97.8 million in 1984, an increase of 5% from 1983.when looking at the Consolidated Balance Sheet (Exhibit2), we found that the total assets grew 15% to $2.7 billion at the end of fiscal 1984 due to addition of real estate inventories as part of the acquisition of another company. The ratio of debt to total capitalization jumped to 43% at 1984 from 20% at previous year. With the first opening of Tokyo Disneyland operated by an independent Japanese company and the inflow of Yen royalty receipts, the foreign exchange rate risk began to emerge. As the Yen depreciated, the revenues from the royalties were shrinking from 1980 to 1985. Therefore, the weak Yen had a negative influence on Disney’s total net income. We also know the goal of the firm’s management is to make the firm as valuable as possible, and then the firm should pick the debt-equity ratio that makes the pie as big as possible. Usually, the total value of the firm equals the sum of the total debt and total equity. (V=D+E). As shown in the right chart, we can clearly get a conclusion that an increase in total value of debt will increase the total value of Disney from 1983 to 1984. We can maximize Disney’s value by creating more value of the debt. If we expose the Yen debt to the risk of the fluctuation in Yen-dollar exchange rates, it would also have great impact on the total value of our debt and

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