Disney wants to create a new attraction at Disneyland to capitalize on the hype surrounding the Marvel movies. They will spend $60 million today to build this new ride. This new ride would only last for 4 years, after which they would create a newer ride for the next fad. Here are the numbers for the new ride: 3. Year 1 Year 3 Year 4 Year 2 $94 million $50 million $50 million $30 million $1 million $1 million $25 million $15 million $0 $0 Revenues from ride $85 million $40 million $5 million $4 million COGS $10 million $5 million Advertising Lost revenues from existing rides Increased sales of $3 million $5 million $8 million $10 million merchandise They will depreciate the new ride to zero over 4 years using straight-line depreciation They anticipate that, four years from now, they could sell the ride for $5 million. They will need to increase net working capital by $12 million today, but this amount will decrease by $3 million each year until the end of the investment. They will also use land that they already own for this investment; the land has a market value of $40 million and a book value of $10 million. Disney has a tax rate of 30% and expects a return of 11% on investments like this. Should they make this investment?
Disney wants to create a new attraction at Disneyland to capitalize on the hype surrounding the Marvel movies. They will spend $60 million today to build this new ride. This new ride would only last for 4 years, after which they would create a newer ride for the next fad. Here are the numbers for the new ride: 3. Year 1 Year 3 Year 4 Year 2 $94 million $50 million $50 million $30 million $1 million $1 million $25 million $15 million $0 $0 Revenues from ride $85 million $40 million $5 million $4 million COGS $10 million $5 million Advertising Lost revenues from existing rides Increased sales of $3 million $5 million $8 million $10 million merchandise They will depreciate the new ride to zero over 4 years using straight-line depreciation They anticipate that, four years from now, they could sell the ride for $5 million. They will need to increase net working capital by $12 million today, but this amount will decrease by $3 million each year until the end of the investment. They will also use land that they already own for this investment; the land has a market value of $40 million and a book value of $10 million. Disney has a tax rate of 30% and expects a return of 11% on investments like this. Should they make this investment?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 12P
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Help please not sure how to . And also how do I set this up using excel. Pearson
Transcribed Image Text:Disney wants to create a new attraction at Disneyland to capitalize on the hype
surrounding the Marvel movies. They will spend $60 million today to build this new
ride. This new ride would only last for 4 years, after which they would create a newer
ride for the next fad. Here are the numbers for the new ride:
3.
Year 1
Year 3
Year 4
Year 2
$94 million
$50 million
$50 million
$30 million
$1 million
$1 million
$25 million
$15 million
$0
$0
Revenues from ride
$85 million
$40 million
$5 million
$4 million
COGS
$10 million
$5 million
Advertising
Lost revenues from
existing rides
Increased sales of
$3 million
$5 million
$8 million
$10 million
merchandise
They will depreciate the new ride to zero over 4 years using straight-line depreciation
They anticipate that, four years from now, they could sell the ride for $5 million. They
will need to increase net working capital by $12 million today, but this amount will
decrease by $3 million each year until the end of the investment. They will also use land
that they already own for this investment; the land has a market value of $40 million and
a book value of $10 million.
Disney has a tax rate of 30% and expects a return of 11% on investments like this.
Should they make this investment?
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