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