Aswath Damodaran 191
Other Assumptions
! Disney will have to maintain non-cash working capital (primarily consisting
of inventory at the theme parks and the resort properties, netted against
accounts payable) of 5 % of revenues, with the investments being made at the
end of each year.
! The income from the investment will be taxed at Disney’s marginal tax rate of
37. 3 %
This will be a drain on the cash flows, since revenues are growing. This, in turn,
will create larger inventory and working capital needs each year, which will tie
up more cash in the project.
The tax rate used is the marginal tax rate (as opposed to the effective tax rate
reported in income statements and annual reports) because projects create
income at the margin and will be taxed at the margin.
