DeVry University

KELLER GRADUATE SCHOOL OF MANAGEMENT

Pomona, California

THE DISNEY COMPANY

By
John Mascarenas
Johnnymask1@gmail.com

Submitted in Partial Fulfillment of the Course

Requirements for
Managerial Finance
FIN 515
Professor Nitin Dvivedi

June 12, 2016

The company that I have investigated is The Walt Disney Company (DIS). The
Walt Disney Company, commonly known as Disney, is an American diversified
multinational mass media and entertainment conglomerate headquartered at the Walt
Disney Studios in Burbank, California. It is the world's second largest media
conglomerate in terms of revenue, after Comcast. Disney was founded on October 16,
1923, by Walt Disney and Roy O. Disney as the Disney Brothers Cartoon Studio, and
established itself as a leader in the American animation industry before diversifying into
live-action film production, television, and theme parks. The company also operated
under the names The Walt Disney Studio, then Walt Disney Productions. Taking on its
current name in 1986, it expanded its existing operations and also started divisions
focused upon theater, radio, music, publishing, and online media. (Wikipedia 2016)
I was drawn to this company first by accident because my wife started working
for Disney just as a fun part time job. She has now been with the company going on 7
years. The New York Stock Exchange, the Dow Jones Industrial average, and the S&P
500 all show the ticker symbol for Disney at DIS. (Yahoo. 2016)
The Walt Disney Company over, like most, has been showing the steady
improvement (see figure 1). In the past year it has shown extreme turbulence in its stock
price as it has been impacted by overall economic news about the economy. There have
been some surprises in earnings and there is certainly risk in this market segment. But
overall the company also has acceptable financial numbers and is rated from neutral to
outperform by analysts. (TheStreet, 2016)

By no means is it a diamond in the rough but it does appear to have solid potential
and could ride a wave of a resurging economy. Looking at its WACC may prove effective
and worth the time.
Figure 1

Analysis using the Weighted Average Cost of Capital (WACC)

I determined its WACC for The Walt Disney Company to be 15.61%. This is
based on current financial data as well as estimations of cost of equity. From the basic
information on this company it would not appear to be that exciting of an investment
opportunity. The advantages of using such a WACC are its simplicity, easiness, and
enabling prompt decision making. The disadvantages are its limited scope of application
and its rigid assumptions coming in the way of evaluation of new projects. (eFinance,
2016)
From investors angle, it is the opportunity cost of their capital. If the return
offered by the company is less than its WACC, it is destroying value and hence, the
investors may discontinue their investment in the company. (efinance, 2016) So after

gathering the data on DIS as shown in table 1, and using the formula WACC =
rD (1- Tc )*( D / V )+ rE *( E / V ), I arrived at the WACC of 15.61%. See figure 2

Weighted Average Cost of Capital (WACC)

Walt Disney Co., cost of capital

Value

Weight

Required rate of return

Calculation
Equity (fair value)

157,928

Borrowings (fair value)

0.90

17,788

17.21%
0.10

1.40% =

2.12% (1 34.10%)
1 USD $ in millions
Equity (fair value) = No. shares of common stock outstanding Current
share price
= 1,622,440,708 $97.34 = $157,928,378,516.72
Borrowings (fair value). See Details
2 Required rate of return on equity is estimated by using CAPM. See Details
Required rate of return on debt. See Details
Required rate of return on debt is after tax.
Estimated (average) effective income tax rate
= (36.20% + 34.60% + 31.00% + 33.30% + 34.60% + 34.90%) 6 = 34.10%

WACC = 15.61%
Figure 2 (Walt Disney Cost of Capital, Stock Analysis. 2016)

Summary
Disney as an investment appears to be a worthy consideration. The WACC for this
company is a 15.61% and this means that any investments with them should have a return
of no less than this WACC. I have invested in Disney around 2 years ago and bought into
it at around $45 a share. I have had the share go up to as high as $122 a share. So, I
believe that my return has been way above the WACC of 15.61%. I believe that as long
as Disney continues in the future that anyone that invests will not get rich, but will not
lose any investments.

References
https://en.wikipedia.org/wiki/The_Walt_Disney_Company
http://finance.yahoo.com/q?s=DIS

https://www.thestreet.com/story/13263182/1/with-disney-stock-dropping-now-is-a-goodtime-to-buy.html
https://www.efinancemanagement.com/investment-decisions/evaluating-new-projectswith-weighted-average-cost-of-capital-wacc
https://www.efinancemanagement.com/investment-decisions/importance-and-use-ofweighted-average-cost-of-capital-wacc
https://www.stock-analysis-on.net/NYSE/Company/Walt-DisneyCo/DCF/Present-Value-of-FCFF