Terminal Value = FCFF 11 / (Cost of capitalStable Growth – g)
= 1903. 84 / (. 0716 -. 04 ) = $ 60 , 219. 11 million
! Value of firm
PV of cashflows during the high growth phase =$ 7 , 894. 66
PV of terminal value =$ 27 , 477. 81
Cash and Marketable Securities =$ 1 , 583. 00
Non-operating Assets (Holdings in other companies) =$ 1 , 849. 00
Value of the firm =$ 38 , 804. 48
To estimate the terminal value, we first estimate how much needs to be
reinvested. With a growth rate of 4%, and a return on capital of 10%, the total
reinvestment (net cap ex + change in working capital) is 40%.
The free cash flow to the firm is used to arrive at the terminal value, with the cost
of capital in year 11 being used as the discount rate.
Disney reported a book value of $1.849 million for minority investments in
other companies(Disney owns 39% of Euro Disney and 43% of the proposed
Hong Kong Disney park. It also owns 37.5% of the A&E network and 39.6%
of E! Television). primarily in non-US Disney theme parks. In the absence of
detailed financial statements for these investments, we will assume that the book
value is roughly equal to the market value. Note that we consider the rest of the
assets on Disney’s balance sheet including the $6.2 billion it shows in
capitalized television and film costs and $19.7 billion it shows in goodwill and
intangibles to be operating assets that we have already captured in the cashflows.
