Project Appraisal Of The Wonderland Theme Park Finance Essay

This study is sing the subject park undertaking of Wonderland although the market research conducted in the undertaking shows great consequences it is necessary to make a undertaking assessment to happen the dependability of the undertaking and whether set abouting the undertaking will ensue in net income for Wonderland and its stockholders.

The assessment method used for Wonderland subject park is net present value method to happen out the present value of the hard currency influxs and out flows of the undertaking and ciphering the profitableness of the undertaking.

Part A

Net Present Value of the Undertaking: –

? Million

? Million

? Million

? Million

? Million

? Million

0

1

2

3

4

5

Gross

Tickets ( kid )

76.65

80.48

84.51

88.73

93.17

Tickets ( grownup )

54.75

57.49

60.36

63.38

66.55

Souvenirs & A ; gifts

22.995

24.14

25.35

26.62

27.95

Food & A ; imbibe

29.20

30.66

32.19

33.80

35.49

Entire grosss ( A )

183.594

192.77

202.41

212.53

223.16

Expenses

Labors

– ? 36.75

– ? 38.58

– ? 40.51

– ? 42.54

– ? 44.66

Operation cost

– ? 17

– ? 22

– ? 27

– ? 32

– ? 37

Insurance

– ? 2.1

– ? 2.21

– ? 2.32

– ? 2.43

– ? 2.55

Entire disbursals ( B )

55.85

62.79

69.83

76.97

84.21

Internet ( A-B )

127.74

129.98

132.58

135.56

138.95

Tax @ 35 %

( 44.71 )

( 45.49 )

( 46.40 )

( 47.45 )

( 48.63 )

Tax economy

26.25

19.69

14.77

11.07

8.31

( C )

109.28

103.18

100.95

99.18

98.63

Current assets

200

Initial cost

( 250 )

( 250 )

Working capital ( realisable value )

( 60 )

( 3 )

( 3.15 )

( 3.31 )

( 3.47 )

( 2.64 )

Entire

( 310 )

( 143.72 )

100.03

97.64

95.71

294.99

Discount factor ( 14 % )

1

0.877

0.769

0.675

0.592

0.519

Entire ( PV )

( 310 )

( 126.04 )

67.52

65.91

56.66

153.10

NPV = hard currency influxs – escapes

= 67.52+65.91+56.66+153.10 – ( 310 ) – ( 126.04 )

NPV = ( 92.85 ) Million

Therefore wonderland can see that by catching the undertaking it has to endure a loss as the net present value in negative of ? 92.85 million but it should be keep in head that this computation have been done for 5 old ages clip merely where as the life of the undertaking in indefinite it should besides bear in head that the gross will be generated after 2 old ages of get downing the undertaking and disbursals will get down every bit shortly as the undertaking start which may hold cause the negative net nowadays value.

It is besides noteworthy that the company Wonderland Inc is missing the experience to run the concern of subject park therefore it should engage the services of people who have the thought of how the concern of subject park is run and what initial stairss should be taken to better it.

Wonderland weighted cost of capital is 14 % where the rate of market return is 12 % which means that Wonderland Inc is paying 2 % to its investors in the undertaking which is a good policy as it will promote the investors to put in the undertaking and besides will hold Wonderland Inc in coevals of finance for the undertaking.

But overall the undertaking does non look assuring and should non be taken by wonderland.

Working for the Net Present Value: –

Market Research: –

This is done for cost and irrelevant for the computation of net present value as it has occurred before the undertaking and has no affect on the undertaking determination.

Gross

Tickets for kid

Year 1: 20,000 * 70 %

= 14000 * ? 15

= ? 210,000 * 365

= ? 76.65 Million

Year 2: ? 76.65 * 5 %

= 3.83 + 76.65

= ? 80.48 m

Year 3: ? 80.48 * 5 %

= 4.03 + 80.48

= ? 84.51 m

Year 4: ? 84.51 * 5 %

= 4.22 + 84.51

= ? 88.73 m

Year 5: ? 88.73 * 5 %

= 4.44 + 88.73

= ? 93.17 m

Tickets for grownup

Year 1: 20,000 * 30 %

= 6000 * ? 25

= ? 150,000 * 365

= ? 54.75 Million

Year 2: ? 54.75 * 5 %

= 2.73 + 54.75

= ? 57.49 m

Year 3: ? 57.49 * 5 %

= 2.87 + 57.48

= ? 60.36 m

Year 4: ? 60.36 * 5 %

= 3.01 + 60.35

= ? 63.38 m

Year 5: ? 63.38 * 5 %

= 3.17 + 63.36

= ? 66.55 m

Keepsakes and gifts

Year 1: 20,000 * 365

= 7300000 * ? 7

= 51100000 * 45 %

= ? 22.995 Million

Year 2: ? 22.99 M * 5 %

= 1.14 + 22.99

= ? 24.13 M

Year 3: ? 24.13 m * 5 %

= 1.20 + 24.13

= ? 25.33 M

Year 4 ? 25.33 m * 5 %

= 1.26 + 25.33 m

= ? 26.59 m

Year 5 ? 26.59 m * 5 %

= 1.32 + 26.59 m

= ? 27.91 m

Drinks and nutrient

Year 1: 20,000 * 365

= 7300000 * ? 10

= 73000000 * 40 %

= ? 29.20 Million

Year 2: ? 29.20 M * 5 %

= 1.46 M + 29.20 M

= ? 30.66 M

Year 3: ? 30.66 M * 5 %

= 1.533 M + 30.66 M

= ? 32.193 M

Year 4: ? 32.193 M * 5 %

= 1.60 M + 32.193 M

= ? 33.80 M

Year 5: ? 33.80 M * 5 %

= 1.69 M + 33.80 M

= ? 35.49 M

Labors cost: –

the cost of labor for the undertaking is traveling to be 35 million per annum at current monetary value which will be increase 5 % every twelvemonth due to rising prices.

Insurance Cost: –

The insurance cost of 2 million is straight from the subject park therefore merely that portion of the cost has been included in the workings of the undertaking and an accommodation if 5 % rise has been included every twelvemonth due to the rising prices.

Non Current Asset: –

The non current plus has a after revenue enhancement resalable value between 100 million to 200 million for computation purpose the estimation value of 200 million has been taken for the computation of net present value for this assignment.

Discount factor: –

Beta Assets = Beta Equity * E / E + D ( 1-t )

Beta assets = 1.5 * 2000 / 2000 + 530 ( 1 – 0.35 )

Beta assets = 1.5 * 2000 / 2000 + 530 ( 0.65 )

Beta assets = 1.5 * 2000 / 2344.5

Beta assets = 1.28

Now

Beta assets = Beta equity * 65 / 65 + 35 ( 1 – 0.35 )

= 1.28 = Beta equity * 65 / 65 + 35 ( 1-0.35 )

= 1.28 = Beta equity * 0.741

Beta equity = 1.28/0.741 = 1.727

Beta equity = 1.727

Now

Cost of equity ( Ke ) = Rf + Beta equity ( Rm – Releasing factor )

Ke = 3.5 % + 1.727 ( 12 % – 3.5 % )

Ke = 18.17 %

Wonderland planning to put in the subject park undertaking to diversify its operations therefore the industry ratios of the market along with the rival ratios which is Alice limited have been taken to place the factors for the computations to cipher the cost of equity and debt to come up with a leaden mean cost of capital for the assessment of the subject park undertaking for Wonderland

WACC ( leaden norm cost of capital )

WACC = Ke ( % ) + Kd ( 1-t ) * d ( % )

WACC = 18.18 % ( 0.65 ) + 8 % ( 1-0.35 ) * ( 0.35 )

WACC = 11.817 + 1.82

WACC = 13.637 %

Discount factor or WACC = 14 %

Capital allowance

? 300 Million * 25 % = ? 75 Million * 35 % revenue enhancement rate = ? 26.25

? 26.25 Million * 75 % = ? 19.688 Million

? 19.688 Million * 75 % = ? 14.766 Million

? 14.766 Million * 75 % = ? 11.074 Million

? 11.074 Million * 75 % = ? 8.306 Million

Part B

Financial and Non Financial Issues sing the undertaking of Wonderland

in this portion we will look at the fiscal and non fiscal information which can impact the determination of wonderland sing the undertaking project and what can be done to avoid any barrier in the undertaking by comparing it with the rival Alice Limited.

Wonderland Financial Performance: –

Net Present Value

The net present value of the undertaking is in negative amounted to ( 92.85 ) which is a immense figure and can impact wonderland value in the eyes of its portion holders and may ensue in the stockholders selling their portions and doing the portion monetary value autumn down.

Debt of Company: –

The company debt ratio after taking the undertaking of subject park will be 35 % which is non a large factor as the company is finance by its equity but if the undertaking is undertaken for the following five old ages at that place will be lost in the undertaking which can alarm the costumiers sing company value and its public presentation and can make an negative image in the eyes of the stockholders of the company.

Expected Market Return: –

The expected market return rate is 12 % this means that if any return provided to the stockholders which less than the market desired return it will ensue in company is losing its stockholders which can non be tolerate by the company.

Share Price: –

The current portion monetary value of Wonderland is 200 pence as comparison to its rival Alice limited which portion monetary value is 400 pence which is twice the monetary value of Wonderland portions this is another of import factor which need to be keep in head

Equity: –

Wonderland equity is in good form as they have 65 % which makes the company a less gearing and less hazardous company in the eyes of investors but this per centum of equity demands to be keeping in order to derive the trust of stockholders and stakeholders in the fiscal public presentations of company.

Inflation: –

Inflation is besides an of import factor which should be consider and should be do certain that all estimations have the component of rising prices adjusted to them.

It can besides impact the job for Wonderland because the rising prices can be rise in the hereafter and ensuing in alteration of estimations.

Alice Limited Financial Performance

Gearing: –

The Debt ratio of Alice limited is 32.20 % ( 570/1770 ) which is less than Wonderland debt geartrain but it does non impact much as there is non much difference in it if the undertaking is taken by Wonderland.

Equity: –

The equity of Alice limited is 67.80 % ( 100-32.20 ) which is once more non a large difference to Wonderland if the undertaking is undertaken so it should be ignore.

Share Price: –

The portion monetary value of Alice limited portions are 400 pence which is twice the monetary value of Wonderland which is 200 pence although both companies are executing the same this addition in portion monetary value shows that stockholders have most

Alice Limited Debt: –

Alice limited debt consist of long term and average term bonds at a par value of ? 100 but their current market monetary value is ? 93 which is ? 7 less than the par value which means that Alice Limited offering its bond holders involvement rate which is less than market rate this can be a utile information sing the fiscal scheme of Wonderland as portion holders and bondholders like to hold greater return on their investing and if Wonderland can return them the coveted return on their investing they will be more attracted to put in Wonderland than in Alice Limited.

Non Financial Factors: –

Along with the fiscal factors the non fiscal factors should be indentified which can impact the undertaking and happen out ways to get the better of these factors.

The chief non fiscal factors identified are: –

Experience: –

Wonderland has no old experience in the operations and running of subject park and may do a trouble this can be overcome by enrolling staff from the subject park industry and do most used of their experience in the concern.

Customers: –

The clients have been divided into two groups which are grownups and kids and both of them have different gustatory sensation and should be mark otherwise.

Adults: –

Adults will normally come with their households to hold a good clip the subject park should offer something to the grownups that entertain them more and they like to come to the park every clip without holding to acquire bore with the attractive forces offer by the subject park.

There should be attractive forces in the subject park which attract the grownups like drives for grownups and films so they can hold a good clip while in the subject park.

Childs: –

Childs are the chief mark clients of the subject park as they are the one who normally ask their parents to travel to a peculiar subject park therefore there should be attractive forces for kids which attract them more like drive and nutrient bases and they enjoy their clip while in the subject park.

Beside that employees should be train to be child head and entertain the kids by camouflage subject ego as celebrated sketch characters.

Promotions: –

In order to pull more clients in subject park and doing certain that they know about it publicities should be used to do everyone cognize about the new subject park in its attractive force therefore it is necessary to utilize all agencies of advertisement to pull the people coming to the subject park.

Part C

After analyzing the undertaking wholly and all its affects on the fiscal public presentation of Wonderland I have come options for Wonderland subject park which I believe will assist in assessment of Wonderland subject park

The options are:

Abandonment: –

If Wonderland decide to abandon the undertaking of subject park it will non hold any consequence on its fiscal public presentation unless the program has been made public that Wonderland intends to construct the subject park in that instance it will give a negative image of Wonderland Inc fiscal public presentation so this options can merely be use if the information sing wonderland subject park is non made populace but it does than the option can be merely used when there is no other option available to avoid the loss from the undertaking.

Expansion: –

The option of enlargement can be used if it can be done at no extra cost or if any cost should non be more. This option can be ideal as presently the estimation clients for wonderland subject park are projected to be 20000 each twenty-four hours by spread outing the park more clients can see the subject park which will assist in bring forthing more gross and holding more clients in the subject park.

Flexibility: –

Under this option Wonderland needs to be flexible in its operations in the first twelvemonth and should disregard any mistake or error in the undertaking as it is a new undertaking and many of the employees of wonderland are non familiar with so there are opportunities of error happening during the undertaking and may ensue in doomed of gross due to those mistakes.

Wonderland Iraqi National Congress should hold to concentrate on the large image and allow those mistakes go and should non be worried about the mistakes as the chief concern of wonderland is the undertaking and its hard currency flows if wonderland wants to continue with the undertaking.

Selling: –

Wonderland has to concentrate on its merchandising scheme for selling should be to sell more tickets to the wonderland subject park by utilizing right taging scheme and advancing it to the multitudes it should be do certain that the clients know about the subject park and would acquire tempted to see the park.

Lapp should be done with the nutrient and imbibe bases by constructing a nice eating house in the subject park but besides offering nutrient bases and ice pick base and do certain that the nutrient provided is of best quality and gustatory sensation.

The gifts and gross subdivisions should incorporate gift points sing the subject park which can be their images in the subject park demoing the fantastic clip they had in the park or jerseies of wonderland subject park and visitants should be encourage to purchase those points from the wonderland subject park.

Cross Promotions: –

Under this option the scheme will be to open the subject park and usage cross promotional tools to pull more visitants towards the subject park like partnership can be done with supermarkets like Tesco, Sainsbury ‘s and Asda by advancing the subject park at these superstores and directing the tickets or promotional brochures of the Wonderland subject park to the trueness card holder of these supermarkets with offering them any price reduction.

Equity Financing: –

Another scheme can be to finance the whole undertaking through issued of ordinary portions and penchant portions as Wonderland equity ratio in high so it can afford to finance the undertaking through the equity it can be advantage as by financing the undertaking through equity will ensue in less geartrain for the company and will better the public presentation of Wonderland in the eyes of its portion holders.

Investing in Other Undertakings: –

This option can be explore by looking for other concerns for variegation which wonderland Iraqi National Congress can work with and can give a positive net nowadays value.

This is my understanding sing the undertaking of wonderland subject park that it is a hazardous investing and should be avoid by wonderland and other options should be explore for its variegation which consequence in net income as the portion holders and investors demand net income from the company hence this undertaking should be abandon by the company wonderland Iraqi National Congress