New Heritage Doll Company: Capital Budgeting

Selected Operating Projections for Match My Doll Clothing Line Expansion

Exhibit 1
2010
Revenue

2011

2012

4,500

6,860

Revenue Growth

52.4%

Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Depreciation
Total Production Costs

575

575

2,035

3,404

152

152

2,762

4,131

Selling, General & Administrative

1,250

1,155

1,735

Total Operating Expenses

1,250

3,917

5,866

583

994

3.0%

3.0%

Days Sales Outstanding

59.2

59.2

Inventory Turnover (prod. cost/ending inv.)

7.7x

8.3x

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

30.8

30.9

952

152

Operating Profit

(1,250)

Working Capital Assumptions:

Minimum Cash Balance as % of Sales

Capital Expenditures

1,470

MMDC SOLUTION
2010

2011

2012

Net Working Capital

MINIMUM CASH BALANCE

RECEIVABLES
INVENTORY
PAYABLES
TOTAL NET WORKING CAPITAL
CHANGE IN NET WORKING CAPITAL
FREE CASH FLOW:
EBIT
TAX @ 40%
Earning After Tax
DEPRECIATION
CHANGE IN NWC
CAPITAL EXPENDITURE (10 yrs)
Tax Benefit
FREE CASH FLOW
Terminal Value (Growth Rate Assumed at 2%)
Cash Flow After terminal value

135.00

205.80

729.49

1,112.07

339.84
317.29
887.05
-87.05

481.69
483.72
1,315.85
-428.81

994.00
-397.60
596.40
152.20
-428.81
-152.20

-3,520.00

582.80
-233.12
349.68
152.20
-87.05
-952.20
500.00
-37.37

-3,520.00

-37.37

167.59

800.00
-800.00

-1,250.00
-1,250.00
0.00
-800.00
-1,470.00

167.59

15,792.60

CUMULATIVE FREE CASH FLOW

8.40%

DISCOUNT RATE
NET PRESENT VALUE
INTERNAL RATE OF RETURN
PAYBACK PERIOD (Note 1)

Moddified Internal rate MIRR (Note 2)

as Calculated in Note 2

Note 1 - Payback Period

In 7 years
In 4.51 months in 8th year
Capital Outlay Amount

5,937.39
22.12%
7 years and 4 months
19.66%

3,244
276
3,520
Year

Note 2 - MIRR
Cash Flow After terminal value for IRR
Cash Flow After terminal value for MIRR

2010
-3520
-3520

2011
2012
-37.3654 167.5949
0
0

ine Expansion
2013

2014

2015

2016

2017

2018

2019

2020

8,409

9,082

9,808

10,593

11,440

12,355

13,344

14,411

22.6%

8.0%

8.0%

8.0%

8.0%

8.0%

8.0%

8.0%

587

598

610

622

635

648

660

674

4,291

4,669

5,078

5,521

6,000

6,519

7,079

7,685

152

152

164

178

192

207

224

242

5,029

5,419

5,853

6,321

6,827

7,373

7,963

8,600

2,102

2,270

2,452

2,648

2,860

3,089

3,336

3,603

7,132

7,690

8,305

8,969

9,687

10,462

11,299

12,203

1,277

1,392

1,503

1,623

1,753

1,893

2,045

2,209

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

59.2

59.2

59.2

59.2

59.2

59.2

59.2

59.2

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

31.0

31.0

31.0

31.0

31.0

31.0

31.0

31.0

152

334

361

389

421

454

491

530

2013

2014

2015

2016

2017

2018

2019

2020

C SOLUTION

252.26

272.45

294.24

317.78

343.20

370.66

400.31

432.34

1,363.15

1,472.20

1,589.97

1,717.17

1,854.55

2,002.90

2,163.14

2,336.19

384.02
592.95
1,406.48
-90.63

414.74
640.38
1,519.01
-112.52

447.91
691.61
1,640.52
-121.51

483.75
746.93
1,771.77
-131.25

522.45
806.69
1,913.50
-141.74

564.25
871.24
2,066.57
-153.07

609.39
940.93
2,231.91
-165.34

658.14
1,016.21
2,410.46
-178.55

1,277.30
-510.92
766.38
152.20
-90.63
-152.20

1,391.80
-556.72
835.08
152.20
-112.52
-333.80

1,503.10
-601.24
901.86
164.40
-121.51
-360.50

1,623.46
-649.38
974.08
177.50
-131.25
-389.30

1,753.27
-701.31
1,051.96
191.70
-141.74
-420.50

1,893.30
-757.32
1,135.98
207.10
-153.07
-454.10

2,045.00
-818.00
1,227.00
223.60
-165.34
-490.50

2,208.50
-883.40
1,325.10
241.50
-178.55
-529.70

675.75

540.96

584.25

631.03

681.43

735.91

794.76

675.75

540.96

584.25

631.03

681.43

735.91

858.35
13,679.94
794.76 14,538.29

2013
2014
2015
2016
2017
2018
2019
2020
675.7494 540.9554 584.2494 631.0259 681.4257 735.9149 794.7576 14538.29
0
0
0
0
0
0
0 21186.74

22%
19.7%

0
1
2
3
4
5

-5000
10000
-500
1000
2000
400
Rs. 5,398.84

New Heritage Doll Company: Capital Budgeting

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

2011

2012

6,000

1,650

2,250

Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Development Costs

435

Depreciation
Total Production Costs

310

435

4,210

Selling, General & Administrative

1,201

1,240

Total Operating Expenses

1,201

435

5,450

(1,201)

(435)

Operating Profit

550

Working Capital Assumptions:

Minimum Cash Balance as % of Sales

3.0%

Days Sales Outstanding

59.1

Inventory Turnover (prod. cost/ending inv.)

12.2x

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

Capital Expenditures

33.7
4,610

310

DYOD SOLUTION
2010

2011

2012

Net Working Capital

MINIMUM CASH BALANCE

RECEIVABLES
INVENTORY
PAYABLES
TOTAL NET WORKING CAPITAL
CHANGE IN NET WORKING CAPITAL
FREE CASH FLOW:
EBIT
TAX @ 40%
Earning After Tax
DEPRECIATION
CHANGE IN NWC
CAPITAL EXPENDITURE
Tax Benefit
FREE CASH FLOW
Terminal Value (Growth Rate Assumed at 2%)
Cash Flow After terminal value
CUMULATIVE FREE CASH FLOW
DISCOUNT RATE

180.00
971.51

0
0

1,000
(1,000)

-1,201.00

-435.00

-1,201.00
-435.00
0.00
0.00
0.00 -1,000.00
-4,610.00
0.00
480.40
-5,811.00
-954.60
-5,811.00
20,808.44
9.00%

-954.60

320.20
474.15
997.56
2.44

550.30
-220.12
330.18
309.70
2.44
-309.70
174.00
506.62
506.62

NET PRESENT VALUE

INTERNAL RATE OF RETURN
PAYBACK PERIOD (Note 1)

Moddified Internal rate MIRR (Note 2)

5,475.06
16.28%
9 years & 1 month
15.81%

Note 1 - Payback Period

In 7 years
In 4.51 months in 8th year
Capital Outlay Amount

4,140
1,671.13
5,811
Year

Note 2 - MIRR
Cash Flow After terminal value for IRR
Cash Flow After terminal value for MIRR

2010
-5811
-5811

2011
2012
-954.6 506.6235
-954.6
0

2013

2014

2015

2016

2017

2018

2019

2020

14,360

20,222

21,435

22,721

24,084

25,529

27,061

28,685

139.3%

40.8%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

1,683

1,717

1,751

1,786

1,822

1,858

1,895

1,933

7,651

11,427

12,182

12,983

13,833

14,736

15,694

16,712

310

310

436

462

490

520

551

584

9,644

13,454

14,369

15,231

16,145

17,113

18,140

19,229

2,922

4,044

4,287

4,544

4,817

5,106

5,412

5,737

12,566

17,498

18,656

19,775

20,962

22,219

23,553

24,966

1,794

2,724

2,779

2,946

3,123

3,310

3,509

3,719

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

59.2

59.2

59.2

59.2

59.2

59.2

59.2

59.2

12.3x

12.6x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

33.8

33.9

33.9

33.9

33.9

33.9

33.9

33.9

310

2,192

826

875

928

983

1,043

1,105

2013

2014

2015

2016

2017

2018

2019

2020

DYOD SOLUTION

430.80

606.65

643.04

681.63

722.53

765.88

811.83

860.54

2,327.89

3,278.12

3,474.79

3,683.28

3,904.28

4,138.54

4,386.86

4,650.06

760.72
1,134.94
2,384.47
-1,386.92

1,040.69
1,598.27
3,327.18
-942.71

1,095.32
1,694.15
3,519.00
-191.81

1,161.05
1,795.82
3,730.14
-211.14

1,230.72
1,903.57
3,953.95
-223.81

1,304.55
2,017.77
4,191.20
-237.25

1,382.83
2,138.85
4,442.67
-251.47

1,465.80
2,267.18
4,709.23
-266.56

1,794.30 2,723.70 2,779.20 2,945.80 3,122.60 3,310.10 3,508.56 3,719.00

-717.72 -1,089.48 -1,111.68 -1,178.32 -1,249.04 -1,324.04 -1,403.42 -1,487.60
1,076.58 1,634.22 1,667.52 1,767.48 1,873.56 1,986.06 2,105.14 2,231.40
309.70
309.70
436.20
462.40
490.10
519.50
550.70
583.80
-1,386.92
-942.71
-191.81
-211.14
-223.81
-237.25
-251.47
-266.56
-309.70 -2,191.50
-825.70
-875.30
-927.80
-983.40 -1,042.50 -1,105.00
-310.34 -1,190.29

1,086.21

1,143.44

1,212.05

1,284.91

-310.34 -1,190.29

1,086.21

1,143.44

1,212.05

1,284.91

1,361.87

1,443.64
21,035.92
1,361.87 22,479.57

2013
-310.335
0

2014
2015
2016
2017
2018
2019
2020 Rate
-1190.29 1086.207 1143.439 1212.048 1284.912 1361.869 22479.57
16%
0
0
0
0
0
0 28791.5
15.8%

Remarks
IRR
MIRR