New Heritage Doll Company: Capital Budgeting

Solution Sheet 1
NPV Analysis for Match My Doll Clothing Line Extension
2010

2011
4 500
NA

2012
6 860
52,44%

2013
8 409
22,58%

2014
9 082
8,00%

2015
9 808
8,00%

2016
10 593
8,00%

2017
11 440
8,00%

2018
12 355
8,00%

2019
13 344
8,00%

2020
14 411
8,00%

0
1 250
1 250

575
2 035
152
2 762
1 155
3 917

575
3 404
152
4 131
1 735
5 866

587
4 291
152
5 029
2 102
7 132

598
4 669
152
5 419
2 270
7 690

610
5 078
164
5 853
2 452
8 305

622
5 521
178
6 321
2 648
8 969

635
6 000
192
6 827
2 860
9 687

648
6 519
207
7 373
3 089
10 462

660
7 079
224
7 963
3 336
11 299

674
7 685
242
8 600
3 603
12 203

-1 250

583

994

1 277

1 392

1 503

1 623

1 753

1 893

2 045

2 209

3,0%
59,2x
7,7x
30,8x

3,0%
59,2x
8,3x
30,9x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

952

152

152

334

361

389

421

454

491

530

2011
135
729
360
317
907
107
20,15%

2012
206
1 112
500
484
1 334
427
19,45%

2013
252
1 363
396
593
1 418
84
16,87%

2014
272
1 472
427
640
1 531
113
16,86%

2015
294
1 590
461
692
1 653
122
16,86%

2016
318
1 717
498
747
1 786
132
16,86%

2017
343
1 855
538
807
1 929
143
16,86%

2018
371
2 003
581
871
2 083
154
16,86%

2019
400
2 163
627
941
2 250
167
16,86%

2020
432
2 336
677
1 016
2 429
180
16,86%

2010
-1 250
-500
-750
0
800
1 470
-3 020

2011
583
233
350
152
107
952
-557

2012
994
398
596
152
427
152
169

2013
1 277
511
766
152
84
152
682

2014
1 392
557
835
152
113
334
541

2015
1 503
601
902
164
122
361
583

2016
1 623
649
974
178
132
389
630

2017
1 753
701
1 052
192
143
421
680

2018
1 893
757
1 136
207
154
454
735

2019
2 045
818
1 227
224
167
491
793

2020
2 209
883
1 325
242
180
530
857
16 345

0
1,0000
-3020
7 150
-146

1
0,9225
-514

2
0,8510
144

3
0,7851
536

4
0,7242
392

5
0,6681
390

6
0,6163
388

7
0,5686
387

8
0,5245
385

9
0,4839
384

10
0,4464
383
7296

2010
-3 020
7,64%
-3020
23,99%

2011
-557

2012
169

2013
682

2014
541

2015
583

2016
630

2017
680

2018
735

2019
793

2020
857

2010
-3 020
-3 020
2018, that is the 8th after initial investment

2011
-557
-3 577

Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Depreciation
Total Production Costs
Selling, General & Administrative
Total Operating Expenses
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.)

NA
NA
NA
0,0x

Capital Expenditures

1 470

Net Working Capital Accounts
Cash (=as a % of Sales Revenue)
Accounts Receivable (=Revenue/365*Days Sales Outstanding)
Inventory (=Prodctn Costs/Inventory Turnover)
Accounts Payable (=Total Op Expenses/365*Days Payable Outstanding)
Net Working Capital
DNWC
NWC/Sales

2010

800

NPV Analysis
Free Cash Flows
EBIT
Taxes
Net Income
plus depreciation
less DNWC
less capital expenditures
Free Cash Flow
Terminal value

40%

3,00%

Initial Outlays
Net working capital
Net property, plant & equipment
PERIOD
Discount factor
Present value
Net Present Value
NPV without Terminal Value

8,40%

IRR Analysis
Cash Flows
IRR w/o Terminal Value
Cash Flows with Terminal Value
IRR with Terminal Value

Payback Analysis

Cash flows
Cumulative cash flow
Payback period

-557

169

2012
169
-3 408

682

2013
682
-2 726

541

2014
541
-2 185

583

2015
583
-1 602

630

2016
630
-972

680

735

2017
680
-291

2018
735
443
X

793

2019
793
1 237

17202

2020
857
2 094

2021

883

58% 2020 861 4 650 1 512 2 267 4 755 269 16.7x Revenue Revenue Growth Production Costs Fixed Production Expense (excl depreciation) Additional development costs (IT personnel) Variable Production Costs Depreciation Total Production Costs Selling.8x 310 2014 20 222 40.9x 2 192 2015 21 435 6.00% 3.2x 12.2x 12.0% 59.0% 59.6x 33.00% 2021 3.58% NPV Analysis Free Cash Flows EBIT Taxes Net Income plus depreciation less DNWC less capital expenditures Free Cash Flow Terminal value 2010 -1 201 -480 -721 0 0 4 610 -5 331 2011 0 0 0 0 1 000 0 -1 000 2012 550 220 330 310 24 310 306 2013 1 794 718 1 077 310 1 386 310 -309 2014 2 724 1 089 1 634 310 942 2 192 -1 190 2015 2 779 1 112 1 667 436 202 826 1 076 2016 2 946 1 178 1 767 462 213 875 1 141 2017 3 123 1 249 1 874 490 226 928 1 210 2018 3 310 1 324 1 986 520 240 983 1 283 2019 3 508 1 403 2 105 551 254 1 043 1 359 2020 3 719 1 488 2 231 584 269 1 105 1 441 24 737 0 1.0000 -5 331 7 298 -3 152 1 0.9x 1 043 1 105 2012 180 973 346 474 1 024 24 17.9x 2020 28 685 6.2x 12.82% 3.2x 12.00% Present value Net Present Value NPV without Terminal Value IRR Analysis Cash Flows IRR Cash Flows with Terminal Value IRR with Terminal Value -1000 306 -309 -1190 1076 1141 1210 1283 1359 1 484 26178 Payback Analysis Cash flows Cumulative cash flow Payback period 2012 306 -6 025 2013 -309 -6 334 2014 -1 190 -7 523 2015 1 076 -6 447 2016 1 141 -5 305 2017 1 210 -4 096 2018 1 283 -2 813 2019 1 359 -1 454 2020 1 441 -13 1 484 1 472 X . plant & equipment PERIOD Discount factor 9.78% 2014 607 3 278 1 065 1 598 3 352 942 16.2x 33.00% 3.) NA NA NA NA Capital Expenditures Net Working Capital Accounts Cash (=as a % of Sales Revenue) Accounts Receivable (=Revenue/365*Days Sales Outstanding) Inventory (=Prodctn Costs/Inventory Turnover) Accounts Payable (=Total Op Expenses/365*Days Payable Outstanding) Net Working Capital DNWC NWC/Sales 2011 0 4 610 0 2010 2011 0 1 000 1 000 310 3.9x 928 2018 25 529 6.33% 0 1 650 1 683 1 717 1 751 1 786 1 822 1 858 1 895 1 933 0 1 201 1 201 0 0 0 0 0 2 250 310 4 210 1 240 5 450 7 651 310 9 644 2 922 12 566 11 427 310 13 454 4 044 17 498 12 182 436 14 369 4 287 18 656 12 983 462 15 231 4 544 19 775 13 833 490 16 145 4 817 20 962 14 736 520 17 113 5 106 22 219 15 694 551 18 140 5 412 23 553 16 712 584 19 229 5 737 24 966 -1 201 0 550 1 794 2 724 2 779 2 946 3 123 3 310 3 508 3 719 NA NA NA NA 3.3x 33.0% 59.0% 59. op.00% 2021 1 484 Initial Outlays Net working capital Net property.4224 609 10 449 2010 -5 331 -0.) Days Payable Outstanding (based on tot. cost/ending inv.2x 12.4604 626 10 0. exp.7722 -239 4 0.0% 59.57% 2015 643 3 475 1 130 1 694 3 553 202 16.9x 875 2017 24 084 6.New Heritage Doll Company: Capital Budgeting Solution Sheet 2 NPV Analyss for Design Your Own Doll 2010 2012 6 000 NA 2013 14 360 139.00% 3.0% 59.7x 33.2x 12.58% 2019 812 4 387 1 426 2 139 4 486 254 16.6499 700 6 0.9x 983 2019 27 061 6.0% 59.07% 2013 431 2 328 786 1 135 2 410 1 386 16.33% 2011 -1 000 2012 306 2013 -309 2014 -1 190 2015 1 076 2016 1 141 2017 1 210 2018 1 283 2019 1 359 2020 1 441 2010 -5 331 -5 331 2021.5963 681 7 0.7x 33.00% 3.9x 826 2016 22 721 6. that is the 11th year after initial investment 2011 -1 000 -6 331 40% 3.7x 33.7x 33.58% 2018 766 4 139 1 345 2 018 4 232 240 16.58% 2017 723 3 904 1 269 1 904 3 992 226 16.0% 59.0% 59.2x 12.58% 2016 682 3 683 1 197 1 796 3 766 213 16.5470 662 8 0.2x 12.8417 258 3 0.024% -5331 18.9174 -917 2 0.7x 33. General & Administrative Total Operating Expenses Operating Profit Working Capital Assumptions: Minimum Cash Balance as % of Sales Days Sales Outstanding Inventory Turnover (prod.7084 -843 5 0.5019 644 9 0.2x 12.00% 3.7x 33.