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Netflix, Inc. can implement new capital budgeting ideas to create more value for their company. The idea presented in this mod
another new Original Series; like their prior series 'Orange is the New Black' and 'House of Cards'. The model presents this idea
highlighted in yellow under the year 2014. Each of the stages of creating a TV series are labeled; "Pre-Production", "Production
Netflix has seen prior success with their original series, giving them reason to explore creating more. There is also a possible si
season renewal (creating a second season of the original series). This capital budgeting opportunity would have a start up cost
payback of under a year.
This model is intended to be easily interpreted by any non-financial person. It has been created to make suggestions about stra
for Netflix, Inc. This model is a fully functioning model with imbedded formulas; when one cell is changed, other cells referencin
accordingly. It was created to forecast the worth (Net Present Value) of a possible future capital budgeting opportunity for Netflix
explored here is the possibility of creating another new original series, like Orange is the New Black. The NPV of this opportunit
green. This possible capital budgeting opportunity could be a deciding factor for another company that is looking at Netflix as a
capital budgeting projects with high positive NPV's add value to a company. In the use of this model, yellow values can be chan
based on different assumptions.
Critical Assumptions:
Critical assumptions about Netflix, Inc. have been made in order to forecast the NPV of a capital budgeting opportunity. All cells
represent assumptions, these can be changed to recognize value drivers. Green cells represent important decision measures w
million), IRR of 617% and payback period which is currently 0.2 years for the estimated opportunity. If these decision measures
investment would not be worth it. Data Tables are at the end of the model to show value drivers. Current levels of each value dr
green. Cells highlighted in blue represent a value that would increase the NPV even further. All critical assumptions include a so
given value; this is located directly to the right of the value.
The results of this model indicate that the new original series opportunity is a good investment for the company. This investmen
company today. This is shown by the positive NPV of $101 million and a positive IRR of 617%. Also, the payback for this invest
makes the investment worthwhile because the company would have the cash flows available to pay back the purchase of the e
expiration of their useful life. Through the use of data tables it was found that any of the value drives could be pushed very high
still come out positive. Even so it shows that Netflix could increase monthly rate to make the opportunity wort more. It was also
customers pushes NPV very high, this could be achieved by implementing new marketing to ensure that new customer goals ar
also reviewed some costs of the investment and neither increased salary costs nor increased equipment cost pushed the NPV
Recommendations:
Due to a positive NPV, IRR, and short payback period we would recommend investing in this opportunity. Through the use of Da
that assumptions would have to be pushed to extremes to make the project not worth while (result in a negative NPV). This opp
company and thus increase future cash flows.
2014
$
$
$
$
$
$
$
$
$
$
72,000
24,000
4
6,000
3
5,100
2
850
25
34
3
720,000
9
80,000
10
8,000
$120,000
60
2,000
$24,000
60
$400
$9,600
480
3
20
8
$20
$12,000
480
$25
$20,160
480
$42
$1,500,000
3
10
$50,000
$1,000,000
20
10
$5,000
$150,000
3
2,500
20
$1,000,000
$16,000
10
8
8
$25
$1,200,000
7
23,014
34%
9.6%
6.5%
15%
2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
72,000
5,100
720,000
20,160
16,000
1,500,000
1,000,000
12,000
9,600
120,000
24,000
150,000
1,200,000
(4,848,860)
1,648,612
(3,200,248)
(3,200,248)
2014
(1,000,000)
(23,014)
(1,023,014)
(4,223,261)
350,379,946
750%
0.2
Data Tables:
Green Cell Represents Current Values
Blue Cells Represent what gives Highest NPV
Number of New
Customers
Monthly Rate
2015
$
$
$
720,000
9
80,000
10
8,000
$120,000
60
2,000
$24,000
60
$400
$9,600
480
3
20
8
$20
$12,000
480
$25
$20,160
480
$42
$1,500,000
2016
2017
2018
3
10
$50,000
$1,000,000
20
10
$5,000
$150,000
3
2,500
20
20%
$800,000
20%
$600,000
20%
$400,000
48,903,594 $
97
1%
49,886,556 $
98
1%
505,000
1%
510,050
1%
515,151
1%
489,036 $
97 $
1%
498,866
98
1%
16,000
10
8
8
25
$
$
47,940,000 $
96
12
7.99
500,000
$
$
1
479,400 $
96 $
12
7.99
5,000
$
$
20%
$200,000
7
23,014 $
-15
(1,970,137) $
34%
7
23,014 $
-15
(2,009,737) $
34%
5050
1%
7
23,014 $
-15
(2,050,132) $
34%
50,889,276
99
1%
5101
1%
7
23,014
-15
(2,091,340)
34%
2015
47,940,000 $
$
$
$
$
$
$
$
$
$
$
$
720,000
20,160
16,000
1,500,000
1,000,000
12,000
9,600
120,000
24,000
150,000
$
$
$
$
$
200,000
44,368,240
(15,085,202)
29,283,038
29,483,038
$
$
$
$
$
2015
2016
48,903,594 $
479,400 $
200,000
49,382,994
(16,790,218)
32,592,776
32,792,776
$
$
$
$
$
2016
2017
49,886,556 $
489,036 $
200,000
50,375,592
(17,127,701)
33,247,891
33,447,891
$
$
$
$
$
2017
2018
50,889,276
498,866
200,000
51,388,142
(17,471,968)
33,916,173
34,116,173
2018
$
$
1,970,137 $
(23,014) $
39,600 $
(23,014) $
40,396 $
(23,014) $
41,208
(23,014)
1,947,123 $
16,586 $
17,382 $
18,194
31,430,162 $
32,809,362 $
33,465,273 $
34,134,367
NPV
$
50,000
350,379,946
Cost of Equipment
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
700,000
750,000
800,000
850,000
900,000
950,000
1,000,000
0.99
1.99
2.99
3.99
4.99
5.99
6.99
7.99
8.99
9.99
10.99
11.99
12.99
13.99
14.99
350,379,946
Lead Actor Wage
2019
Assumptions/Explanations:
calculation
There will be 9 people on this drama comedy series http://mentalfloss.com/article
calculation
The show will take 10 weeks to produce because it will only be 10 episodes for th
It costs 8000/week for a staff writer http://defamer.gawker.com/heres-what-your-f
Calculation
there are 60 days in 3 months
they make 2k a day
Calculation
there are 60 days in 3 months
make 400 a day http://www.ask.com/question/production-designer-salary
Calculation
Calculation
works for 3 months
works 20 days a month
works 8 hours a day
make $20/hr http://www.ehow.com/info_7756095_average-salary-gaffer.html
Calculation
Calculation
makes $25/ hr http://www.ehow.com/info_8424489_average-salary-foley-artist.htm
Calculation
Calculation
make $42/hr http://www.ehow.com/info_12003623_salary-director-television-show
Calculation
Calculation
The series will be 10 episdoes
it takes 8 days to edit one episode https://ca.answers.yahoo.com/question/index?
it takes 8 hours a day to edit one episode https://ca.answers.yahoo.com/question
TV editors make $25/hr http://www.ehow.com/info_7735721_much-film-video-edit
$
$
$
$
$
51,912,150 Calculation
100 Calculation
1% Grow customer revenue each year by 1%
there are 12 months in a year
It cost customers 7.99/month for netflix
520,302 Customers will increase by 500k-Netflix has over 400 million customers and gains
1% Growth in customer base will be 1%
One or more seasons could be renewed
508,893 Calculation
99 Calculation
1% Growth in customer base will be 1%
Tehre are 12 months in a year
It cost customers 7.99/month for netflix
5152 Fewer Customers will join for extended series as opposed to a new series
1% Growth in customer base will be 1%
Netflix spends 1.2 million to produce DVDs too rent out to customers, this cost on
7 Inventory Days is 7 Days
23,014 Calculation
-15 Netflix collects money from customers 15 Days before providing service
(2,133,376) Calculation
34% Netflix Tax Rate is 34% http://csimarket.com/stocks/singleProfitabilityRatios.php?c
Calculation
50% of this investment will be financed through debt
50% of this investment will be financed through equity
$
$
2019
51,912,150
508,893
$
$
$
$
$
200,000
52,421,043
(17,823,155)
34,597,889
34,797,889
2019
$
$
$
$
42,036
(23,014)
360,786,817
360,805,840
395,603,728
250,000
$
$
$
$
$
$
$
$
$
$
$
500,000
750,000
1,000,000
1,250,000
1,500,000
1,750,000
2,000,000
2,250,000
2,500,000
2,750,000
3,000,000
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
how idea
com/heres-what-your-favorite-television-writers-make-1485130956/all
works.com/tv-production.htm
much-money-casting-director-make-14191.html
chron.com/much-money-casting-director-make-14191.html
wstuffworks.com/tv-production.htm
ttp://mentalfloss.com/article/15208/studio-6030-rock-tv-writing-numbers
ion-designer-salary
rage-salary-gaffer.html
erage-salary-foley-artist.html
ary-director-television-shows.html
onpost.com/2013/08/20/actors-salaries_n_3785074.html
w.nytimes.com/2003/02/16/realestate/lights-camera-action-location-fees.html
ge.com/tvp007.htm
yahoo.com/question/index?qid=20090201003908AA0Rt2m
nswers.yahoo.com/question/index?qid=20090201003908AA0Rt2m
35721_much-film-video-editors-make.html
million customers and gains around 4 million new customers each year
ut to customers, this cost only happens once because the DVDs are rented not produced, so the inventory return
e providing service
ngleProfitabilityRatios.php?code=NFLX&itx
the inventory returns and is used again and the seasons cant be purchased elsewhere either https://answers.ya
her https://answers.yahoo.com/question/index?qid=20061007022938AAobDIm