Tokyo Disney Solution: (all numbers in USD)
AAR = -1.05%
(Average net income = (3.03 million)
Average investment = 2,881.52 million
Terminal value = 4,331 million
Net cashflows
2000
44.9
2001
47.8
2002
2003
147.8
210.4
Initial investment 3389.30
WACC = .0565
ACFR = 17.87%
Average net cash flows = 605.5
NPV = 466.47
IRR = 8.52%
Payback period > 5 yrs
The project was accepted probably for the following reasons
The company was under political pressure.
The company wanted to use the land. They would lose the land if they did not use it.
The project would increase employment and help local community.
The IBJ wanted the company to take the project because they wanted a project to invest their money in.
IBJ had its representatives on the board.
The shareholders would have been happy to take it also since the ACFR was acceptable.
The government wanted it too because of additional tax revenues. Bottomline is that stakeholders other
than shareholders wanted it also.