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The differences between project-specific financing and firm-wide financing, using disney's theme park as a case study. It explores the concept of durability of projects and the perfect debt structure, as well as the use of operational cash flows and firm value analysis in determining the debt structure. The document also includes regression analysis and sensitivity to interest rate changes.
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¨ Rather than look at individual projects, you could consider the firm to be a porfolio of projects. The firm’s past history should then provide clues as to what type of debt makes the most sense.
n The quesGon of how sensiGve a firm’s asset cash flows are to a variety of factors, such as interest rates, inflaGon, currency rates and the economy, can be directly tested by regressing changes in the operaGng income against changes in these variables. n This analysis is useful in determining the coupon/interest payment structure of the debt.
n The firm value is clearly a funcGon of the level of operaGng income, but it also incorporates other factors such as expected growth & cost of capital. n The firm value analysis is useful in determining the overall structure of the debt, parGcularly maturity.
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Change in Firm Value = 0.1949 -‐ 2.94 (Change in Interest Rates) (2.89) (0.50) T staGsGcs are in brackets.
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δP/δr= Percentage Change in Value for a percentage change in Interest Rates
Traditional Duration Measures
Regression: δP = a + b (δr)
Uses:
Uses:
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Change in OperaGng Income = 0.1958 + 6.59 (Change in Interest Rates) (2.74) (1.06)
