Disney Scoping Report

Disney Scoping Report

Presented by

Institution

Presented to

Date

Organizations get sources for their money from many areas and for different reasons. Every organization has a financial plan showing sources of capital and a breakdown of how the money will be utilized. Financing a business requires knowledge of economics involved in running of the business in order to conduct an effective financial analysis that assists in designing of financial projections (Guy 2000). In April 2014, Disney announced its intension to accelerate the expansion of Shanghai Disney Resort after an agreement with Shanghai Shendi Group. The expansion was estimated to cost 0.8 billion U.S. dollars (5 billion Yuan). The expansion would be used for new entertainment grounds, building of attraction centers, and increasing theme park capacity (Business Wire 2014). The following analysis will focus on financing Disney expansion with more emphasis on sources of finance, the available sources of funds that Disney can use, and the costs associated with acquiring capital for expansion.

Sources of Finance, Financial & Non-financial Costs, Financial & Non-financial benefit

According to Carter, MacDonald & Cheng (1997), entrepreneurs have many sources of finances that they use to start, run, and expand their businesses. A company may acquire funds from sources like capital markets, loan stock, retained earnings, bank borrowing, business expansion schemes, venture capital, franchising, or government sources. Disney being a large and internationally recognized entertainment industry could obtain finances from any of the above sources. The company recorded annual revenue of $45 billion at the end of financial year 2013. The above figure clearly shows that the company could easily acquire money for its expansion from retained earnings because they make profits worth billions of dollars each year. Disney should make a professional decision before choosing the source of finance to use. The expansion of Disney activities in Shanghai is a recommendable action that is likely to see the company grow and acquire huge revenues. In addition, the company will be certain to return the amount borrowed from owing to the fact that China is one of the highest growing economies in the world (Wei & Wang 2014).

The financial and non-financial costs associated with sourcing finances will also be reduced because the company will not incur costs associated with interest payments and processing of loans from banks. Project financing provides equitable allocation of risks associated with starting and expansion of any business through involving various project stakeholders. Disney will make use of this process to acquire finances from capital markets at low costs. The benefits associated with this source of finance include less cost of equity, low interest rates, and increased stock shares (Gardner and Wright n.d).

What sources of funds are there that Disney can use for the expansion?

In order for Disney to determine the best source of finance for expanding its operations, it has to consider the following factors. Firstly, the organization should consider the impact of the business activities they ought to expand. Most lending organizations evaluate the uses of money one intends to borrow before releasing the cash. The expansion process will have a lot of impact and gather many revenues for Disney; hence any source of finance would be recommended. Secondly, the potential of the business activity should also be considered. In whatever method of financing an organization chooses, the ability to sell business concepts for a successful growth increases the potential of obtaining money to finance the project. A solid business plan would be recommended showing financial projections for the company, and how they intend to market their new business (Lipczynski & Wilson 2004).

The best source of fund that Disney could use to expand their business is sourcing money from capital markets. Capital markets act as good sources of project financing when a company has acquired stock market shares. This source of capital will offer Disney an opportunity to raise more cash for future expansions because it offers a simple low-cost source of money. In addition, the company can sell new shares to existing shareholders and retain profits rather than giving shareholders dividends. Moreover, using this source of fund will save the company some unnecessary expenses of paying loan interests. Capital markets are recommended sources for Disney expansion because they have no fixed cost, there is no maturity term, improves the credit rating of an organization, and maintains ownership rights (Anonymous 2011).

The costs associated with getting capital for the expansion

Acquiring capital for business expansion is associated with a number of costs as discussed below. Firstly, an organization incurs the cost of paying for interest charged on loans. Some sources charge high interest rates that make the cost of expanding a business much bigger than the projected amount in the company’s financial plans. Secondly, an organization goes through a period of low income turnover as they concentrate of paying back the capital obtained from loans. Lending institutions like banks give entrepreneurs loans that are paid with a very long duration. The company may not meet all its profit demands because some revenue will be used to cater for unpaid loan (Carter, MacDonald & Cheng 1997).

References list

ANONYMOUS. (2011). “Capital Markets Law Journal – Front Cover”, Capital Markets Law Journal, 6(2), 11-19.

BUSINESS WIRE. (2014, April 28). Shanghai Disney Resort Accelerates Resort Expansion.Press release distribution, EDGAR filing, XBRL, regulatory filings. Retrieved May 14, 2014, from:

http://www.businesswire.com/news/home/20140428006727/en/Shanghai-Disney-Resort-Accelerates-Resort-Expansion#.U3OYqIGSxXo

CARTER, S., MACDONALD, N. J., & CHENG, D. C. (1997). Basic finance for marketers. Rome: Food and Agriculture Organization of the United Nations.

GARDNER, DAVID AND WRIGHT, JAMES. (n.d). Project Finance (Chapter 12). pp. 1-4. Retrieved from:

http://www.hsbcnet.com/gbm/attachments/products-services/financing/project-finance.pdfGUY, F. (2000). International Journal of the Economics of Business. Routledge: Taylor &

Francis Group. Volume 7, pp. 265

LIPCZYNSKI, J. & WILSON, J. (2004). The Economies of Business Strategy. FT prentice Hall.

WEI, H., & WANG, Y. (2014). The micro-analysis of regional economy in China a perspective of firm relocation. Singapore: World Scientific Pub. Co.