Georgia Gaming Market Assessment - Pennsylvania Treasury

FINANCIAL ANALYSIS
To determine if the locations identified can generate enough revenue to be viable and attract
prospective developers to invest significant capital a top level financial analysis was prepared.
To make this determination, we utilized several industry standard return metrics including Net
Present Value (“NPV”), Internal Rate of Return (“IRR”), EBITDA Return on Investment and
Payback Period.
Methodology and Results
Discounted Cash Flows (Net Present Value or NPV)
The present value of future cash flows discounted at an estimated cost of capital and offset by the
capital investments required by the project.
� Finance experts widely agree that net present value is the correct measure in
assessing mutually exclusive projects.
� Projects with negative net present value do not offer an economic return. Projects
with positive net present value are opportunities to consider. The greater the
magnitude in either direction indicates the greater value of the project.
� Net Present Value is generally sensitive to terminal values and the associated
multiples.
Internal Rate of Return (IRR)
The discount rate often used in capital budgeting that makes the net present value of all cash
flows from a particular project equal to zero. Generally speaking, the higher a project's internal
rate of return, the more desirable it is to undertake the project.
Pay Back Period
The time period in which the positive cash flows of the project equal the cost or investment into
the project.
� Pay Back does not consider the time value of money, it does not discount any cash
flows.
� Pay Back literally indicates when you get your money back.
For purposes of this analysis, the proposed locations were categorized according to five levels of
revenue and size potential as follows:
The Innovation Group Project #054-11 August 2011 Page 84