Figure I-7
Effect on Net Present Value of Profit Stream Variations from Plan
Both
Factors
Program Costs
Starting Point
Revenues
NPV of Profit Stream (1989 HK$ M)
10000
5000
-5000
25
125
12.5
Worse than Plan (X)
% Change on Plan
25 Better than Plan (X)
Source: ADL analysis
The peak borrowing requirement of HKCC and HCV are also quite similar. Figures 1-8 and I-9 illustrate the peak funds requirement for HKCC and HCV respectively should programming costs and capital expenditure vary from plan. In the case of HKCC, should the programming costs exceed plan by 25%, then HKCC's peak funds requirement will exceed HK$5.0 billion. In the case of HCV, it will exceed HK$5.5 billion.
To be on the safe side, the Government should request that the successful bidder obtains guaranteed access to funds in the order of HK$5.5 billion for the Government to have assurance that the project is supportable in the event of serious adverse variation from plan.
HKCC plans to pay the Government HK$(1989) 2,100 million in cumulative royalty payments over the period of the plan. HCV plans to pay HK$(1989) 950 million. HKCC plans to pay a straight 10% of revenues, while HCV will pay using more complex formula which comes into force when the viability of the business is proven. However, our financial sensitivity analysis, above, is based upon HKCC paying royalties only at the same level as HCV. If HKCC were to pay royalties at its planned level, then the financial robustness of HKCC's project would be much reduced.
Arthur D Little
14