ASSURANCE OF LEARNING EXERCISE 8C: PERFORM AN EPS/EBIT ANALYSIS FOR WALT DISNEY

Transcription

1 Bus 411 Assignment 5 Due March 17 at the beginning of class (2:00 PM) ASSURANCE OF LEARNING EXERCISE 8C: PERFORM AN /EBIT ANALYSIS FOR WALT DISNEY An /EBIT analysis is one of the most widely used techniques for determining the extent that debt and/or stock should be used to finance strategies to be implemented. This exercise can give you practice performing /EBIT analysis. Let s say Walt Disney needs to raise $1.2 billion to build a new theme park in Africa. Determine whether Disney should have used all debt, all stock, or a 90-10% (and 10-90%) combination of debt and stock to finance this market-development strategy. Assume a 29% tax rate, 5% interest rate, Walt Disney stock price of per share, and an annual dividend of $0.40 per share of common stock. The EBIT range for 2012 is between $6 billion and $9 billion. A total of 1.9 billion shares of common stock are outstanding. Develop an /EBIT chart to reflect your analysis. Stock price should be from Common Stock Financing Debt Financing

2 90% Stock 10% Debt Financing 90% Debt 10% Stock ASSURANCE OF LEARNING EXERCISE 8D: PREPARE PROJECTED FINANCIAL STATEMENTS FOR WALT DISNEY This exercise is designed to give you experience preparing projected financial statements. Pro forma analysis is a central strategy-implementation technique because it allows managers to anticipate and evaluate the expected results of various strategy-implementation approaches. 1. Develop a 2012 projected income statement and balance sheet for Disney. Assume that Disney plans to raise $900 million in 2012 to build a new theme park in Africa and plans to obtain 50 percent financing from a bank and 50 percent financing from a stock issuance. Make other assumptions as needed, and state them clearly in written form. 2. Compute Disney s current ratio, debt-to-equity ratio, and return on investment for How do your 2012 ratios compare to the 2010 and 2011 ratios? Why is it important to make this comparison?

3 Disney s Projected Income Statement Projected Income Statement (in millions) Revenues 38,063 40,893 Costs and expenses (31,337) (33,112) Restructuring and impairment charges (270) (55) Other income (expense) Net interest expense (409) (343) Equity in the income of investees Income before income taxes 6,627 8,043 Income taxes (2,314) (2,785) Net income 4,313 5,258 Less: Net income attributable to noncontrolling interests (350) (451) Net income attributable to The Walt Disney Company (Disney) 3,963 4,807 Less Dividends (669) (759) Retained Earnings 3,294 4,048 Earnings per share attributable to Disney: Diluted Basic Weighted average number of common shares outstanding: Diluted ,948 Basic ,915 Disney s Projected Balance Sheet Projected Balance Sheet (in millions) ASSETS Curent assets Cash and cash equivalents 2,722 3,185 Receivables 5,784 6,182 Inventories 1,422 1,595 Television costs Deferred income taxes 1,018 1,487 Other current assets Total current assets 12,225 13,757 Film and television costs 4,773 4,357 Investments 2,513 2,435 Parks, resorts, and other property, at cost Attractions, buildings, and equipment 32,875 35,515 Accumulated depreciation (18,373) (19,572) 14,502 15,593

4 Projects in progress 2,180 2,635 Land 1,124 1,127 Intangible assets, net 5,081 5,121 Goodwill 24,100 24,145 Other assets 2,708 2,614 Total Assets 69,206 72,124 LIABILITIES AND EQUITY Current liabilities Accounts payable and other accrued liabilities 6,109 6,362 Current portion of borrowings 2,350 3,055 Unearned royalties and other advances 2,541 2,671 Total current liabilities 11,000 12,088 Borrowings 10,130 10,922 Deferred income taxes 2,630 2,866 Other long-term liabilities 6,104 6,795 Equity Preferred stock, $0.1 par value Authorized--100 million shares, Issued--none Common stock, $0.1 par value Authorized--4.6 billion shares at October 2,2010 Issued--2.7 billion shares at October 2, ,736 30,736 Retained earnings 34,327 38,875 Accumulated other comprehensive loss (1,881) (2,630) Treasury stock, at cost, million shares at October 1, ,182 66,041 and million shares at October 2, 2010 (23,663) (28,656) Total Disney Shareholder's equity 37,519 37,385 Non-controlling interests 1,823 2,068 Total Equity 39,342 39,453 Total liabilities and equity 69,206 72,124

5 Disney s Projected Ratios vs Better, Worse or about the same? Current Ratio 1.14 Quick Ratio 1.01 Debt to Equity 0.87 Total Asset Turnover 0.57 ASSURANCE OF LEARNING EXERCISE 8E: DETERMINE THE CASH VALUE OF DISNEY It is simply good business practice to periodically determine the financial worth or cash value of your company. This exercise gives you practice determining the total worth of a company using several methods. Use year-end 2011 data as given in DIS Annual Report or 10K SEC filing. 1. Calculate the financial worth of Disney based on four methods: 1) the net worth or stockholders equity, 2) the future value of Disney earnings, 3) the price-earnings ratio, and 4) the outstanding shares method. In a dollar amount, how much is Disney worth? Disney Company Worth Analysis (in millions) Shareholder s Equity Goodwill Intangibles Net Income X 5 (Stock Price/) X NI # of Shares Out X Stock Price Four Method Average $ Goodwill/ $ Total Assets