New Heritage Doll Company: Capital Budgeting

Exhibit 1
Selected Operating Projections for Match My Doll Clothing Line Expansion
2010
Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Depreciation
Total Production Costs

Selling, General & Administrative

1,250

Total Operating Expenses

1,250

Operating Profit

(1,250)

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.)
Capital Expenditures

1,470

MMDC SOLUT
2010
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%)

800.00
-800.00

-1,250.00
-1,250.00
0.00
-800.00
-1,470.00
-3,520.00

-3,520.00

Cash Flow After terminal value

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

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

thing Line Expansion

2011

2012

2013

2014

2015

2016

2017

2018

4,500

6,860

8,409

9,082

9,808

10,593

11,440

12,355

52.4%

22.6%

8.0%

8.0%

8.0%

8.0%

8.0%

575

575

587

598

610

622

635

648

2,035

3,404

4,291

4,669

5,078

5,521

6,000

6,519

152

152

152

152

164

178

192

207

2,762

4,131

5,029

5,419

5,853

6,321

6,827

7,373

1,155

1,735

2,102

2,270

2,452

2,648

2,860

3,089

3,917

5,866

7,132

7,690

8,305

8,969

9,687

10,462

583

994

1,277

1,392

1,503

1,623

1,753

1,893

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

7.7x

8.3x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

30.8

30.9

31.0

31.0

31.0

31.0

31.0

31.0

952

152

152

334

361

389

421

454

2011

2012

2013

2014

2015

2016

2017

2018

135.00

205.80

252.26

272.45

294.24

317.78

343.20

370.66

729.49

1,112.07

1,363.15

1,472.20

1,589.97

1,717.17

1,854.55

2,002.90

339.84
317.29
887.05
-87.05

481.69
483.72
1,315.85
-428.81

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

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

994.00
-397.60
596.40
152.20
-428.81
-152.20

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

167.59

675.75

540.96

584.25

631.03

681.43

735.91

MMDC SOLUTION

-37.37

167.59

675.75

540.96

584.25

631.03

681.43

735.91

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

2011
2012
2013
2014
2015
2016
2017
2018
-37.36539 167.5949 675.7494 540.9554 584.2494 631.0259 681.4257 735.9149
0
0
0
0
0
0
0
0

2019

2020

13,344

14,411

8.0%

8.0%

660

674

7,079

7,685

224

242

7,963

8,600

3,336

3,603

11,299

12,203

2,045

2,209

3.0%

3.0%

59.2

59.2

12.7x

12.7x

31.0

31.0

491

530

2019

2020

400.31

432.34

2,163.14

2,336.19

609.39
940.93
2,231.91
-165.34

658.14
1,016.21
2,410.46
-178.55

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

794.76

858.35
13,679.94

0
1
2
3
4
5

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

794.76 14,538.29

2019
2020
794.7576 14538.29
0 21186.74

22%
19.7%

New Heritage Doll Company: Capital Budgeting

Exhibit 2
Selected Operating Projections for Design Your Own Doll
2010
Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Development Costs
Depreciation
Total Production Costs
Selling, General & Administrative

1,201

Total Operating Expenses

1,201

Operating Profit

(1,201)

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.)
Capital Expenditures

4,610

DYOD SOLU
2010
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

0
0

-1,201.00
-1,201.00
0.00
0.00
-4,610.00
-5,811.00
-5,811.00
20,808.44

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

Moddified Internal rate MIRR (Note 2)

9.00%
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

2013

2014

2015

2016

2017

2018

6,000

14,360

20,222

21,435

22,721

24,084

25,529

139.3%

40.8%

6.0%

6.0%

6.0%

6.0%

1,650

1,683

1,717

1,751

1,786

1,822

1,858

2,250

7,651

11,427

12,182

12,983

13,833

14,736

310

310

310

436

462

490

520

435

4,210

9,644

13,454

14,369

15,231

16,145

17,113

1,240

2,922

4,044

4,287

4,544

4,817

5,106

435

5,450

12,566

17,498

18,656

19,775

20,962

22,219

(435)

550

1,794

2,724

2,779

2,946

3,123

3,310

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

435

59.1

59.2

59.2

59.2

59.2

59.2

59.2

12.2x

12.3x

12.6x

12.7x

12.7x

12.7x

12.7x

33.7

33.8

33.9

33.9

33.9

33.9

33.9

310

310

2,192

826

875

928

983

2012

2013

2014

2015

2016

2017

2018

180.00

430.80

606.65

643.04

681.63

722.53

765.88

971.51

2,327.89

3,278.12

3,474.79

3,683.28

3,904.28

4,138.54

320.20
760.72
474.15 1,134.94
997.56 2,384.47
2.44 -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

DYOD SOLUTION
2011

1,000
(1,000)

-435.00
-435.00
0.00
-1,000.00
0.00
480.40
-954.60
-954.60

550.30 1,794.30 2,723.70 2,779.20 2,945.80 3,122.60 3,310.10

-220.12
-717.72 -1,089.48 -1,111.68 -1,178.32 -1,249.04 -1,324.04
330.18 1,076.58 1,634.22 1,667.52 1,767.48 1,873.56 1,986.06
309.70
309.70
309.70
436.20
462.40
490.10
519.50
2.44 -1,386.92
-942.71
-191.81
-211.14
-223.81
-237.25
-309.70
-309.70 -2,191.50
-825.70
-875.30
-927.80
-983.40
174.00
506.62
-310.34 -1,190.29 1,086.21 1,143.44 1,212.05 1,284.91
506.62

-310.34 -1,190.29

1,086.21

1,143.44

1,212.05

1,284.91

2011
2012
2013
2014
2015
2016
2017
2018
-954.6 506.6235 -310.3352 -1190.293 1086.207 1143.439 1212.048 1284.912
-954.6
0
0
0
0
0
0
0

2019

2020

27,061

28,685

6.0%

6.0%

1,895

1,933

15,694

16,712

551

584

18,140

19,229

5,412

5,737

23,553

24,966

3,509

3,719

3.0%

3.0%

59.2

59.2

12.7x

12.7x

33.9

33.9

1,043

1,105

2019

2020

811.83

860.54

4,386.86

4,650.06

1,382.83
2,138.85
4,442.67
-251.47

1,465.80
2,267.18
4,709.23
-266.56

3,508.56 3,719.00
-1,403.42 -1,487.60
2,105.14 2,231.40
550.70
583.80
-251.47
-266.56
-1,042.50 -1,105.00
1,361.87

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

2019
2020 Rate
Remarks
1361.869 22479.57
16% IRR
0 28791.5
15.8% MIRR