capital budgeting idea for netflix inc

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  • 8/17/2019 Capital Budgeting Idea for Netflix Inc.

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    Netfix New Original Series InvestmentModel Created By: Daniella Comito

    Model Updated On: 4/15/2014

    Capital Budgeting Idea:

    Directions on the use o this Model:

    Critical ssumptions:

    !esults o the Model and "hat the# Mean:

    !ecommendations:

    Netflix, Inc. can implement new capital budgeting ideas to create more value for their company. The idea presented in another new Original Series; lie their prior series !Orange is the New "lac! and !#ouse of $ards!. The model presentshighlighted in yellow under the year &'(). *ach of the stages of creating a T+ series are labeled; -re%-roduction, -Netflix has seen prior success with their original series, giving them reason to explore creating more. There is also a poseason renewal creating a second season of the original series/. This capital budgeting opportunity would have a starpaybac of under a year.

    This model is intended to be easily interpreted by any non%financial person. It has been created to mae suggestions afor Netflix, Inc. This model is a fully functioning model with imbedded formulas; when one cell is changed, other cells reaccordingly. It was created to forecast the worth Net -resent +alue/ of a possible future capital budgeting opportunity explored here is the possibility of creating another new original series, lie Orange is the New "lac. The N-+ of this ogreen. This possible capital budgeting opportunity could be a deciding factor for another company that is looing at Necapital budgeting pro2ects with high positive N-+!s add value to a company. In the use of this model, yellow values canbased on different assumptions.

    $ritical assumptions about Netflix, Inc. have been made in order to forecast the N-+ of a capital budgeting opportunityrepresent assumptions, these can be changed to recogni4e value drivers. 5reen cells represent important decision memillion/, I66 of 7(89 and paybac period which is currently '.& years for the estimated opportunity. If these decision minvestment would not be worth it. :ata Tables are at the end of the model to show value drivers. $urrent levels of eachgreen. $ells highlighted in blue represent a value that would increase the N-+ even further. 3ll critical assumptions incgiven 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 incompany today. This is shown by the positive N-+ of 0('( million and a positive I66 of 7(89. 3lso, the paybac for thmaes the investment worthwhile because the company would have the cash flows available to pay bac the purchaseexpiration of their useful life. Through the use of data tables it was found that any of the value drives could be pushed vstill come out positive. *ven so it shows that Netflix could increase monthly rate to mae the opportunity wort more. It wcustomers pushes N-+ very high, this could be achieved by implementing new mareting to ensure that new customealso reviewed some costs of the investment and neither increased salary costs nor increased e1uipment cost pushed t

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    $uture Contact Inormation:

    Preferred Method of Contact: EMail

    Daniella Comito: daniella!comito"#immon#!ed$

    :ue to a positive N-+, I66, and short paybac period we would recommend investing in this opportunity. Through the that assumptions would have to be pushed to extremes to mae the pro2ect not worth while result in a negative N-+/.company and thus increase future cash flows.

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    Netfix Original Series InvestmentModel Created By: Daniella ComitoModel Created On: %/20/2014Model Updated On: 4/15/2014

     Yellow cells represent Assumptions

    Green cells represent Decision Measures

    ssumptions o the New Netfix Original Series %&'()re*)roduction

     +anuar# through $e,ruar# %&'(

     &otal Co#t of 'dea (eneration ) *2+000

    Co#t of ,ho- creator per month ) 24+000

    .or .ee# per Month 4

    Co#t of ,ho- Creator Per .ee ) +000

    $mer of 'dea (enerator# ) %

     &otal Co#t of Ca#tin3 ) 5+100

    $mer of Ca#tin3 .ee# 2Ca#tin3 Co#t Per Ca#t Director Per .ee ) 50

    $mer of ho$r# Ca#t Director -or# per -ee 25

    Co#t Per Ca#tin3 Director Per o$r ) %4

    $mer of Ca#tin3 Director# %

    )roduction

    March through Ma# %&'(

     &otal ,ta6 .riter# Co#t ) *20+000

    $mer of ,ta6 .rite# 7

    Co#t of One ,ta6 .riter for ,erie# ) 0+000

    $mer of .ee# 10

    Co#t per -ee of ,ta6 .riter ) +000Director of Photo3raphy .a3e )120+000

    $mer of day# -ored y director of Photo3raphy 0

    Director of Photo3raphy Daily .a3e ) 2+000

    Prod$ction De#i3ner .a3e )24+000

    $mer of day# -ored y prod$ction de#i3ner 0

    Prod$ction De#i3ner Daily .a3e )400

    (a6er .a3e )7+00

    $mer of ho$r# -ored y (a6er 40

    $mer of Month# 3a6er -or# %

    Day# in a Month 20

    $mer of o$r# a Day (a6er o$rly .a3e )20

    8oley Mi9er .a3e )12+000

    $mer of ho$r# -ored y foley mi9er 40

    8oley Mi9er o$rly .a3e )25

    Director .a3e )20+10

    $mer of ho$r# -ored y Director 40

    Director o$rly .a3e )42

     &otal ead &alent .a3e )1+500+000

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    $mer of ead ;ctor# %

    $mer of epi#ode# -ored y ead ;ctor# 10

    ead ;ctor .a3e per Epi#ode )50+000

     &otal oneed &alent .a3e )1+000+000

    $mer of oneed ;ctor# 20

    $mer epi#ode# -ored y noneed ;ctor 10

    oneed ;ctor .a3e per Epi#ode )5+000

    Co#t of

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    Income Statement Cash $lows $rom New Original Series %&'(%+200+24?

    Operatin3 Ca#h 8lo-# ) >%+200+24?

    Balance Sheet Cash $lows $rom New Original Series %&'(Co#t of E=$iptment ) >1+000+000?

    ;cco$nt#

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    Monthly

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    %&'. %&'1 %&'5 %&'6

     ) *20+000

    7

     ) 0+000

    10

     ) +000)120+000

    0

     ) 2+000

    )24+000

    0

    )400

    )7+00

    40

    %

    20

    )20

    )12+000

    40

    )25

    )20+10

    40

    )42

    )1+500+000

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    %

    10

    )50+000

    )1+000+000

    20

    10

    )5+000

    )150+000

    %

     ) 2+500

    20

    20 20 20 20

    )00+000 )00+000 )400+000 )200+000

     ) 1+000

    10

    ) 25

    ) 4*+740+000 ) 4+70%+574 ) 47++55 ) 50+7+2*

    ) 7 7* 7 77

    1 1 1

    12

     ) *!77

    500+000 505+000 510+050 515+151

    1 1 1

    1

     ) 4*7+400 ) 47+0% ) 47+

    ) 7 ) 7* ) 7

    1 1

    12

     ) *!77

    5+000 5050 5101

    1 1

    * * * *

     ) 2%+014 ) 2%+014 ) 2%+014 ) 2%+014

    15 15 15 15

     ) >1+7*0+1%*? ) >2+007+*%*? ) >2+050+1%2? ) >2+071+%40?

    %4 %4 %4 %4

    50 $#e of det

    50$#e of e=$ity

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    %&'. %&'1 %&'5 %&'6

     ) 4*+740+000 ) 4+70%+574 ) 47++55 ) 50+7+2*

    ) 4*7+400 ) 47+0% ) 47+

    ) *20+000

    ) 20+10

    ) 1+000

    ) 1+500+000

    ) 1+000+000

    ) 12+000

    ) 7+00

    ) 120+000

    ) 24+000

    ) 150+000

    ) 200+000 ) 200+000 ) 200+000 ) 200+000

    ) 44+%+240 ) 47+%2+774 ) 50+%*5+572 ) 51+%+142

    ) >15+05+202? ) >1+*70+21? ) >1*+12*+*01? ) >1*+4*1+7?

     ) 27+2%+0% ) %2+572+** ) %%+24*+71 ) %%+71+1*%

    ) 27+4%+0% ) %2+*72+** ) %%+44*+71 ) %4+11+1*%

    %&'. %&'1 %&'5 %&'6

     ) 1+7*0+1%* ) %7+00 ) 40+%7 ) 41+20

    ) >2%+014? ) >2%+014? ) >2%+014? ) >2%+014?

     ) 1+74*+12% ) 1+5 ) 1*+%2 ) 1+174

    ) %1+4%0+12 ) %2+07+%2 ) %%+45+2*% ) %4+1%4+%*

    of Aal$e added today 3iAen foreca#t#

    per ann$m rate of ret$rn+ a#ed on foreca#t#

    year#+ a#ed on f$t$re ca#h o- e#timate#

    NPV Varying Number of New Customers

    [email protected]

     ) %50+%*7+74

    50+000 Co#t of E=$ipment

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      100+000

    150+000

    200+000

    250+000

    %00+000

    %50+000

    400+000

    450+000

    500+000

    550+000

    00+000

    50+000

    *00+000

    *50+000

    00+000

    50+000

    700+000

    750+000

    1+000+000

    N)3 3ar#ing Monthl# !ate

    [email protected]

     ) %50+%*7+74

    ) 0!77 ead ;ctor .a3e

     ) 1!77

    ) 2!77

    ) %!77

    ) 4!77

    ) 5!77

    ) !77

    ) *!77

    ) !77

    ) 7!77

    ) 10!77

    ) 11!77

    ) 12!77

    ) 1%!77) 14!77

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    %&'7 ssumptions8/xplanations:

    't -ill tae a team of % -rite# to come $p -ith a ne- #ho- idea

    't -ill only tae one month to create the idea for the #ho-

    there are 4 -ee# in a month

    't co#t# 000 a -ee for a #ho- creator

    there -ill e % idea 3enerator# http://defamer!3a-er!com/here

    Calc$lation

    Ca#tin3 only tae# 2 -ee# http://electronic#!ho-#t$6-or#!coCalc$lation

    Ca#tin3 i# ao$t 5 ho$r# a day http://-or!chron!com/m$chmo

    't co#t# %4) an ho$r for a ca#tin3 director http://-or!chron!co

     &here -ill e % ca#tin3 director# http://electronic#!ho-#t$6-or

    calc$lation

     &here -ill e 7 people on thi# drama comedy #erie# http://ment

    calc$lation

     &he #ho- -ill tae 10 -ee# to prod$ce eca$#e it -ill only e

    't co#t# 000/-ee for a #ta6 -riter http://defamer!3a-er!comCalc$lation

    there are 0 day# in % month#

    they mae 2 a day

    Calc$lation

    there are 0 day# in % month#

    mae 400 a day http://---!a#!com/=$e#tion/prod$ctionde#i3

    Calc$lation

    Calc$lation

    -or# for % month#

    -or# 20 day# a month

    -or# ho$r# a daymae )20/hr http://---!eho-!com/infoF**5075FaAera3e#ala

    Calc$lation

    Calc$lation

    mae# )25/ hr http://---!eho-!com/infoF42447FaAera3e#al

    Calc$lation

    Calc$lation

    mae )42/hr http://---!eho-!com/infoF1200%2%F#alarydirec

    Calc$lation

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    there are % main actor#

    there -ill e 10 epi#doe#

    lead actor# mae 50 per epi#ode http://---!h$Gn3tonpo#t!co

    Calc$lation

    there are 20 ac $p and non lead actor#

    there -ill e 10 epi#doe#

    non lead# mae 5 an epi#ode

    Calc$lation

    #hootin3 la#t# % month#

    it co#t# 2500/day to rent a #hootin3 location http://---!nytime

    there are 20 -or day# in a month

    co#t# 1mil for prod$ction e=$iptment http://cyercolle3e!com/t

    20,tria3htline

    )0 Calc$lation

    Calc$lation

     &he #erie# -ill e 10 epi#doe#

    it tae# day# to edit one epi#ode http#://ca!an#-er#!yahoo!co

    it tae# ho$r# a day to edit one epi#ode http#://ca!an#-er#!ya

     &@ editor# mae )25/hr http://---!eho-!com/infoF**%5*21Fm

     ) 51+712+150 Calc$lation

      100 Calc$lation

    1 (ro- c$#tomer reAen$e each year y 1

    there are 12 month# in a year

    't co#t c$#tomer# *!77/month for neti9

      520+%02 C$#tomer# -ill increa#e y 500eti9 ha# oAer 400 million c$

    1 (ro-th in c$#tomer a#e -ill e 1

    One or more #ea#on# co$ld e rene-ed

     ) 50+7% Calc$lation

     ) 77 Calc$lation

    1 (ro-th in c$#tomer a#e -ill e 1

     &ehre are 12 month# in a year

    't co#t c$#tomer# *!77/month for neti9

    5152 8e-er C$#tomer# -ill Join for e9tended #erie# a# oppo#ed to a

    1 (ro-th in c$#tomer a#e -ill e 1

    eti9 #pend# 1!2 million to prod$ce [email protected]# too rent o$t to c$#t* 'nAentory Day# i# * Day#

     ) 2%+014 Calc$lation

    15 eti9 collect# money from c$#tomer# 15 Day# efore proAidin

    ) >2+1%%+%*?Calc$lation

    %4 eti9 &a9

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    %&'7

     ) 51+712+150

    ) 50+7%

    ) 200+000

    ) 52+421+04%

    ) >1*+2%+155?

     ) %4+57*+7

    ) %4+*7*+7

    %&'7

     ) 42+0%

    ) >2%+014? ) %0+*+1*

    ) %0+05+40

    ) %75+0%+*2

    N)3 3ar#ing Cost o /9uipment

    [email protected]

     ) %50+%*7+74

    ) 250+000

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     ) 500+000

    ) *50+000

    ) 1+000+000

    ) 1+250+000

    ) 1+500+000

    ) 1+*50+000

    ) 2+000+000

    ) 2+250+000

    ) 2+500+000

    ) 2+*50+000

    ) %+000+000

    N)3 3ar#ing ead ctor "age )er /pisode

     [email protected]

    ) %50+%*7+74

    ) 10+000

    ) 20+000

    ) %0+000

    ) 40+000

    ) 50+000

    ) 0+000

    ) *0+000

    ) 0+000

    ) 70+000

    ) 100+000

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    #-hatyo$rfaAoriteteleAi#ion-riter#mae1451%075/all

    /tAprod$ction!htm

    neyca#tin3directormae14171!html

    /m$chmoneyca#tin3directormae14171!html

    #!com/tAprod$ction!htm

    alo##!com/article/1520/#t$dio0%0roctA-ritin3n$mer#

    10 epi#ode# for the r#t #ea#on

    here#-hatyo$rfaAoriteteleAi#ion-riter#mae1451%075/all

    ner#alary

    y3a6er!html

    aryfoleyarti#t!html

    orteleAi#ion#ho-#!html

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    m/201%/0/20/actor##alarie#FnF%*50*4!html

    !com/200%/02/1/reale#tate/li3ht#cameraactionlocationfee#!html

    p00*!htm

    /=$e#tion/inde9H=idI2007020100%70;;0

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    tory ret$rn# and i# $#ed a3ain and the #ea#on# cant e p$rcha#ed el#e-here either http#:

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    //an#-er#!yahoo!com/=$e#tion/inde9H=idI200100*0227%;;oD'm

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