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New Heritage Doll Company: Capital BudgetingTeaching NoteTN Exhibit 1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 4500 6860 8408.8 9081.5 9808 10592.66 11440.07 12355.2 13343.7 14411.2
Revenue Growth NA 0.52 0.23 0.08 0.08 0.08 0.08 0.08 0.08 0.08
Production Costs
Fixed Production Expense (excl depreciation) 575.00 575.00 586.50 598.20 610.10 622.30 634.80 647.50 660.40 673.70
Variable Production Costs 2,035.00 3,403.80 4,290.60 4,669.00 5,078.40 5,521.30 6,000.30 6,518.50 7,078.80 7,684.70
0.45 0.50 0.51 0.51 0.52 0.52 0.52 0.53 0.53 0.53
Depreciation 152.20 152.20 152.20 152.20 164.40 177.50 191.70 207.10 223.60 241.50
Total Production Costs 0 2,762.20 4,131.00 5,029.30 5,419.40 5,852.90 6,321.10 6,826.80 7,373.10 7,962.80 8,599.90
Selling, General & Administrative 1,250 1,155.00 1,735.00 2,102.20 2,270.30 2,452.00 2,648.10 2,860.00 3,088.80 3,335.90 3,602.80
Total Operating Expenses 1,250 3,917.20 5,866.00 7,131.50 7,689.70 8,304.90 8,969.20 9,686.80 10,461.90 11,298.70 12,202.70
Operating Profit (1,250) 582.80 994.00 1,277.30 1,391.80 1,503.10 1,623.46 1,753.27 1,893.30 2,045.00 2,208.50
Operating Profit/Sales 0.13 0.14 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15
SG&A/Sales 0.26 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
Working Capital Assumptions:
Minimum Cash Balance as % of Sales NA 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03
Days Sales Outstanding NA 59.17 59.17 59.17 59.17 59.17 59.17 59.17 59.17 59.17 59.17
Inventory Turnover (prod. cost/ending inv.) NA 7.68 8.26 12.70 12.70 12.70 12.70 12.70 12.70 12.70 12.70
Days Payable Outstanding (based on tot. op. 0.0x 30.76 30.90 31.01 31.01 31.01 31.01 31.01 31.01 31.01 31.01
Capital Expenditures 1,470 952.20 152.20 152.20 333.80 360.50 389.30 420.50 454.10 490.50 529.70
Growth in capex (0.35) (0.84) 0.00 1.19 0.08 0.08 0.08 0.08 0.08 0.08 0.21 0.02 0.02 0.04 0.04 0.04 0.04 0.04 0.04 0.04
Net Working Capital Accounts 2010 2,011.00 2,012.00 2,013.00 2,014.00 2,015.00 2,016.00 2,017.00 2,018.00 2,019.00 2,020.00 Cash 135.00 205.80 252.26 272.44 294.24 317.78 343.20 370.66 400.31 432.34 Accounts Receivable 729.49 1,112.07 1,363.15 1,472.20 1,589.97 1,717.17 1,854.55 2,002.90 2,163.14 2,336.19 Inventory 359.66 500.12 396.01 426.72 460.86 497.72 537.54 580.56 626.99 677.16 Accounts Payable 317.29 483.72 592.95 640.38 691.61 746.93 806.69 871.24 940.93 1,016.21 Net Working Capital 800 906.86 1,334.28 1,418.47 1,530.99 1,653.46 1,785.74 1,928.60 2,082.87 2,249.52 2,429.48
800 106.86 427.41 84.19 112.52 122.47 132.28 142.85 154.28 166.64 179.96 NWC/Sales 0.20 0.19 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17
NPV Analysis
Free Cash Flows 2010 2,011.00 2,012.00 2,013.00 2,014.00 2,015.00 2,016.00 2,017.00 2,018.00 2,019.00 2,020.00 EBIT(1-t) (750) 349.68 596.40 766.38 835.08 901.86 974.08 1,051.96 1,135.98 1,227.00 1,325.10 plus depreciation 0 152 152 152 152 164 178 192 207 224 242
(800.00) (106.86) (427.41) (84.19) (112.52) (122.47) (132.28) (142.85) (154.28) (166.64) (179.96)
NPV Analysis for Match My Doll Clothing Line Extension
DNWC
less DNWC
less capital expenditures (1,470) (952) (152) (152) (334) (361) (389) (421) (454) (491) (530)Free Cash Flow (3,020) (557.18) 168.99 682.19 540.96 583.29 629.99 680.31 734.70 793.46 856.94
Terminal value 3.00% 16,345.33
Initial OutlaysNet working capital (800)Net property, plant & equipment (1470)
Discount factor 8.40% 1.0000 0.92 0.85 0.79 0.72 0.67 0.62 0.57 0.52 0.48 0.45 Present value (3,020) (514.01) 143.81 535.57 391.78 389.71 388.29 386.81 385.37 383.94 7,678.79 Net Present Value $ 7,150 NPV without Terminal Value $ (146)
IRR Analysis2010 2,011.00 2,012.00 2,013.00 2,014.00 2,015.00 2,016.00 2,017.00 2,018.00 2,019.00 2,020.00
Cash Flows (3,020) (557.18) 168.99 682.19 540.96 583.29 629.99 680.31 734.70 793.46 856.94 IRR 7.6%
Payback Analysis2010 2,011.00 2,012.00 2,013.00 2,014.00 2,015.00 2,016.00 2,017.00 2,018.00 2,019.00 2,020.00
Cash flows (3,020) (557.18) 168.99 682.19 540.96 583.29 629.99 680.31 734.70 793.46 856.94 Cumulative cash flow (3,020) (3,577.18) (3,408.20) (2,726.01) (2,185.05) (1,601.76) (971.77) (291.46) 443.24 Payback period 7.40 years
5-year Cumulative EBITDA 6,522.20
Profitability IndexNPV/Initial Investment 1.35
New Heritage Doll Company: Capital BudgetingTeaching NoteTN Exhibit 2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 0 6,000 14,360 20,222 21,435 22,721 24,084 25,529 27,061 28,685
Revenue Growth NA 139.3% 40.8% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Production Costs
Fixed Production Expense (excl depreciation) 0 1,650 1,683 1,717 1,751 1,786 1,822 1,858 1,895 1,933
Additional development costs (IT personnel) 435
Variable Production Costs 0 2,250 7,651 11,427 12,182 12,983 13,833 14,736 15,694 16,712
Depreciation 0 310 310 310 436 462 490 520 551 584
Total Production Costs 0 435 4,210 9,644 13,454 14,369 15,231 16,145 17,113 18,140 19,229
Selling, General & Administrative 1,201 0 1,240 2,922 4,044 4,287 4,544 4,817 5,106 5,412 5,737
Total Operating Expenses 1,201 435 5,450 12,566 17,498 18,656 19,775 20,962 22,219 23,553 24,966
Operating Profit (1,201) (435) 550 1,794 2,724 2,779 2,946 3,123 3,310 3,508 3,719
Operating Profit/Sales 0.092 0.125 0.135 0.130 0.130 0.130 0.130 0.130 0.130
SG&A/Sales 0.207 0.203 0.200 0.200 0.200 0.200 0.200 0.200 0.200
Working Capital Assumptions:
Minimum Cash Balance as % of Sales NA NA 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Days Sales Outstanding NA NA 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x
Inventory Turnover (prod. cost/ending inv.) NA NA 12.2x 12.3x 12.6x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x
Days Payable Outstanding (based on tot. op. NA NA 33.7x 33.8x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x
Capital Expenditures 4,610 0 310 310 2,192 826 875 928 983 1,043 1,105
Growth in capex 0% 608% -62% 6% 6% 6% 6% 6%
0.052 0.022 0.108 0.039 0.039 0.039 0.039 0.039 0.039
Net Working Capital Accounts 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash 0 180 431 607 643 682 723 766 812 861
Accounts Receivable 973 2328 3278 3475 3683 3904 4139 4387 4650
Inventory 346 786 1065 1130 1197 1269 1345 1426 1512
Accounts Payable 474 1135 1598 1694 1796 1904 2018 2139 2267
NPV Analyss for Design Your Own Doll
Net Working Capital 1,000 1,024 2,410 3,352 3,553 3,766 3,992 4,232 4,486 4,755
1,000 24 1,386 942 202 213 226 240 254 269
NWC/Sales 0.171 0.168 0.166 0.166 0.166 0.166 0.166 0.166 0.166
NPV Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Free Cash Flows
EBIT(1-t) (721) (261) 330 1,077 1,634 1,667 1,767 1,874 1,986 2,105 2,231
plus depreciation 0 310 310 310 436 462 490 520 551 584
(1,000) (24) (1,386) (942) (202) (213) (226) (240) (254) (269)
less capital expenditures (4,610) 0 (310) (310) (2,192) (826) (875) (928) (983) (1,043) (1,105)
Free Cash Flow (5,331) (1,261) 306 (309) (1,190) 1,076 1,141 1,210 1,283 1,359 1,441
Terminal value 3.00% 24,737
Discount factor 9.00% 1.000 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 0.5019 0.4604 0.4224
Present value (5,331) (1,157) 258 (239) (843) 700 681 662 644 626 11,058
Net Present Value $ 7,058
NPV without Terminal Value $ (3,391)
IRR Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash Flows (5,331) (1,261) 306 (309) (1,190) 1,076 1,141 1,210 1,283 1,359 26,178 IRR -0.5%
Payback Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash flows (5,331) (1,261) 306 (309) (1,190) 1,076 1,141 1,210 1,283 1,359 26,178 Cumulative cash flow (5,331) (6,592) (6,286) (6,595) (7,784) (6,708) (5,566) (4,357) (3,074) (1,715) 24,464 Payback period >10 years
5-year Cumulative EBITDA $ 8,778
Profitability IndexNPV/Initial Investment 1.32
DNWC
less DNWC
New Heritage Doll Company: Capital BudgetingTeaching NoteTN Exhibit 3 NPV Sensitivity Analyses
NPV if TV growth rate TV=BV of
Discount rate 0% 1% 2% 3% NWC + PPE7.70% $ 5,289 $ 6,141 $ 7,292 $ 8,932 $ 3,011 8.40% $ 4,408 $ 5,075 $ 5,950 $ 7,150 $ 2,687 9.00% $ 3,766 $ 4,314 $ 5,019 $ 5,958 $ 2,425
NPV if TV growth rate TV=BV of
Discount rate 0% 1% 2% 3% NWC + PPE7.70% $ 5,830 $ 7,263 $ 9,198 $ 11,957 $ 3,567 8.40% $ 4,404 $ 5,526 $ 6,998 $ 9,016 $ 2,980 9.00% $ 3,372 $ 4,294 $ 5,479 $ 7,058 $ 2,507
NPV of Match My Doll Clothing Line Extension
NPV of Design Your Own Doll
