New Heritage Doll Company: Capital Budgeting

Exhibit 1
Selected Operating Projections for Match My Doll Clothing Line Expansion
2010
Revenue

2011
4,500

Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)

575

Variable Production Costs

2,035

Depreciation

152

Total Production Costs

2,762

Selling, General & Administrative

1,250

1,155

Total Operating Expenses

1,250

3,917

(1,250)

583

Operating Profit
Working Capital Assumptions:
Minimum Cash Balance as % of Sales

3.0%

Days Sales Outstanding

59.2x

Inventory Turnover (prod. cost/ending inv.)

7.7x

Days Payable Outstanding (based on tot. op. exp.)

30.8x

Capital Expenditures

1,470

952

Working Capital

2010

2011

135.00

Cash
Accounts Receivable

729.49

Inventory

359.66

Accounts Payable

317.29

Total Net Working Capital

800

906.86

106.86

2010

2011

-750

349.68

152

Minus change of Networking Capital

-106.86

Minus Capital Expenditures & Initial Outlay

(952)

-750.00

-557.38

2010

2011

-750.00

-557.38

Delta of Net Working Capital

Operating Cashflow
Net Operating Profit after Taxes (EBIT *(1- 40% Tax Rate))
Depreciation (shown above)

Total Yearly Cash Flow

NPV Calculation & Analysis

Final Cashflows
Initial Outlay - PP&E

(1470)
-2220.00

Discount Rate for Medium Risk Project

Net Present Value of the MMDC Project

8.40%
$603.08

-557.38

Internal Rate of Return

12%

hing Line Expansion

2012

2013

2014

2015

2016

6,860

8,409

9,082

9,808

10,593

52.4%

22.6%

8.0%

8.0%

8.0%

575

587

598

610

622

3,404

4,291

4,669

5,078

5,521

152

152

152

164

178

4,131

5,029

5,419

5,853

6,321

1,735

2,102

2,270

2,452

2,648

5,866

7,132

7,690

8,305

8,969

994

1,277

1,392

1,503

1,623

3.0%

3.0%

3.0%

3.0%

3.0%

59.2x

59.2x

59.2x

59.2x

59.2x

8.3x

12.7x

12.7x

12.7x

12.7x

30.9x

31.0x

31.0x

31.0x

31.0x

152

152

334

361

389

2012

2013

2014

2015

2016

205.80

252.26

272.45

294.24

317.78

1112.07

1363.15

1472.20

1589.97

1717.17

500.12

396.01

426.72

460.86

497.72

483.72

592.95

640.38

691.61

746.93

1,334.28

1,418.47

1,530.99

1,653.46

1,785.74

427.41

84.19

112.52

122.47

132.28

2012

2013

2014

2015

2016

596.4

766.38

835.08

901.86

974.076

152

152

152

164

178

-427.41

-84.19

-112.52

-122.47

-132.28

(152)

(152)

(334)

(361)

(389)

168.79

681.99

540.76

582.89

630.50

2012

2013

2014

2015

2016

168.79

681.99

540.76

582.89

630.5

168.79

681.99

540.76

582.89

630.5

2017

2018

2019

2020

11,440

12,355

13,344

14,411

8.0%

8.0%

8.0%

8.0%

635

648

660

674

6,000

6,519

7,079

7,685

192

207

224

242

6,827

7,373

7,963

8,600

2,860

3,089

3,336

3,603

9,687

10,462

11,299

12,203

1,753

1,893

2,045

2,209

3.0%

3.0%

3.0%

3.0%

59.2x

59.2x

59.2x

59.2x

12.7x

12.7x

12.7x

12.7x

31.0x

31.0x

31.0x

31.0x

421

454

491

530

2017

2018

2019

2020

343.20

370.66

400.31

432.34

1854.55

2002.90

2163.14

2336.19

537.54

580.56

626.99

677.16

806.69

871.24

940.93

1016.21

1,928.60

2,082.87

2,249.52

2,429.48

142.85

154.28

166.64

179.96

2017

2018

2019

2020

1051.962

1135.98

1227

1325.1

192

207

224

242

-142.85

-154.28

-166.64

-179.96

(421)

(454)

(491)

(530)

680.61

734.60

793.86

857.44

2017

2018

2019

2020

680.61

734.6

793.86

857.44

680.61

734.6

793.86

857.44

New Heritage Doll Company: Capital Budgeting

Exhibit 2
Selected Operating Projections for Design Your Own Doll
2010
Revenue

2011
0

Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)

In-House IT Costs (App Development)

435

Variable Production Costs

Depreciation

Total Production Costs

435

Selling, General & Administrative

1,201

Total Operating Expenses

1,201

435

(1,201)

(435)

Capital Expenditures

4,610

Working Capital

2010

2011

Operating Profit
Working Capital Assumptions:
Minimum Cash Balance as % of Sales
Days Sales Outstanding
Inventory Turnover (prod. cost/ending inv.)
Days Payable Outstanding (based on tot. op. exp.)

Cash

Accounts Receivable
Inventory
Accounts Payable
Total Net Working Capital

1,000

Delta of Net Working Capital

1,000.00

Operating Cashflow
Net Operating Profit after Taxes (EBIT *(1- 40% Tax Rate))

-720.60

-261.00

Depreciation (shown above)

Minus change of Networking Capital

(1,000.00)

Minus Capital Expenditures

Total Yearly Cash Flow

(4,610)

-5330.60

-1261.00

NPV & IRR Calculation & Analysis

Final Cashflows
Discount Rate for Medium Risk Project
Net Present Value of the MMDC Project
Internal Rate of Return

9.00%
-$3,110.90
-1%

2010

2011

-5330.60

-1261.00

2012

2013

2014

2015

2016

2017

2018

2019

6,000

14,360

20,222

21,435

22,721

24,084

25,529

27,061

139.3%

40.8%

6.0%

6.0%

6.0%

6.0%

6.0%

1,650

1,683

1,717

1,751

1,786

1,822

1,858

1,895

2,250

7,651

11,427

12,182

12,983

13,833

14,736

15,694

310

310

310

436

462

490

520

551

4,210

9,644

13,454

14,369

15,231

16,145

17,113

18,140

1,240

2,922

4,044

4,287

4,544

4,817

5,106

5,412

5,450

12,566

17,498

18,656

19,775

20,962

22,219

23,553

550

1,794

2,724

2,779

2,946

3,123

3,310

3,509

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

12.2x

12.3x

12.6x

12.7x

12.7x

12.7x

12.7x

12.7x

33.7x

33.8x

33.9x

33.9x

33.9x

33.9x

33.9x

33.9x

310

310

2,192

826

875

928

983

1,043

2012

2013

2014

2015

2016

2017

2018

2019

180

431

607

643

682

723

766

812

973

2328

3278

3475

3683

3904

4139

4387

346

786

1065

1130

1197

1269

1345

1426

474

1135

1598

1694

1796

1904

2018

2139

1,024

2,410

3,352

3,553

3,766

3,992

4,232

4,486

24.13

1,385.58

941.99

201.58

213.21

225.99

239.55

253.92

330.18

1076.58

1634.22

1667.52

1767.48

1873.56

1986.06

2105.14

310

310

310

436

462

490

520

551

(24.13)

(1,385.58)

(941.99)

(201.58)

(213.21)

(225.99)

(239.55)

(253.92)

(310)

(310)

(2,192)

(826)

(875)

(928)

(983)

(1,043)

306.05

-309.00

-1189.57

1076.44

1141.37

1209.87

1282.61

1359.42

2012

2013

2014

2015

2016

2017

2018

2019

306.05

-309.00

-1189.57

1076.44

1141.37

1209.87

1282.61

1359.42

2020
28,685
6.0%
1,933
0
16,712
584
19,229
5,737
24,966
3,719

3.0%
59.2x
12.7x
33.9x
1,105
2020
861
4650
1512
2267
4,755
269.17

2231.40
584
(269.17)
(1,105)
1441.03

2020
1441.03