New Heritage Doll Company: Capital Budgeting

NPV Analysis for Match My Doll Clothing Line Extension

2010
Revenue
Revenue Growth

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

4,500

6,860

8,409

9,082

9,808

10,593

11,440

12,355

13,344

14,411

NA

52.4%

22.6%

8.0%

8.0%

8.0%

8.0%

8.0%

8.0%

8.0%

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

575

575

587

598

610

622

635

648

660

674

2,035

3,404

4,291

4,669

5,078

5,521

6,000

6,519

7,079

7,685

152

152

152

152

164

178

192

207

224

242

2,762

4,131

5,029

5,419

5,853

6,321

6,827

7,373

7,963

8,600

Selling, General & Administrative

1,250

1,155

1,735

2,102

2,270

2,452

2,648

2,860

3,089

3,336

3,603

Total Operating Expenses

1,250

3,917

5,866

7,132

7,690

8,305

8,969

9,687

10,462

11,299

12,203

Total Production Costs

Operating Profit

583

994

1,277

1,392

1,503

1,623

1,753

1,893

2,045

2,209

Operating Profit/Sales

(1,250)

0.130

0.145

0.152

0.153

0.153

0.153

0.153

0.153

0.153

0.153

SG&A/Sales

0.257

0.253

0.250

0.250

0.250

0.250

0.250

0.250

0.250

0.250

Working Capital Assumptions:

Minimum Cash Balance as % of Sales

NA

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

Days Sales Outstanding

NA

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

Inventory Turnover (prod. cost/ending inv.)

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

NA

7.7x

8.3x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

0.0x

30.8x

30.9x

31.0x

31.0x

31.0x

31.0x

31.0x

31.0x

31.0x

31.0x

1,470

Growth in capex
Ending PP&E
Net Working Capital Accounts
Cash
Accounts Receivable
Inventory
Accounts Payable
Net Working Capital
NWC
NWC/Sales
Ending Capital

2010

800

952

152

152

334

361

389

421

454

491

530

-35.2%

-84.0%

0.0%

119.3%

8.0%

8.0%

8.0%

8.0%

8.0%

2011
135
729
360
317
907
107
0.202

2012
206
1112
500
484
1334
427
0.195

2013
252
1363
396
593
1418
84
0.169

2014
272
1472
427
640
1531
113
0.169

2015
294
1590
461
692
1653
122
0.169

2016
318
1717
498
747
1786
132
0.169

2017
343
1855
538
807
1929
143
0.169

2018
371
2003
581
871
2083
154
0.169

2019
400
2163
627
941
2250
167
0.169

8.0%
3,890
2020
432
2336
677
1016
2429
180
0.169
6,320

2011
350
152
(107)
(952)
(557)

2012
596
152
(427)
(152)
169

2013
766
152
(84)
(152)
682

2014
835
152
(113)
(334)
541

2015
902
164
(122)
(361)
583

2016
974
178
(132)
(389)
630

2017
1,052
192
(143)
(421)
680

2018
1,136
207
(154)
(454)
735

2019
1,227
224
(167)
(491)
793

NPV Analysis
Free Cash Flows
NOPAT
plus depreciation
less NWC
less capital expenditures
Free Cash Flow
Terminal value

2010
(750)
0

(750)
3.00% growth

16,345

Terminal value / Book Value

ROIC
Initial Outlays
Net working capital

2020
1,325
242
(180)
(530)
857
2.6
21%

(800)

Net property, plant & equipment

Discount rate

8.40%

(1470)

New Heritage Doll Company: Capital Budgeting

NPV Analyss for Design Your Own Doll

2010
Revenue

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

6,000

14,360

20,222

21,435

22,721

24,084

25,529

27,061

28,685

NA

139.3%

40.8%

6.0%

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

1,933
16,712

Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)

Additional development costs (IT personnel)

435

Variable Production Costs

2,250

7,651

11,427

12,182

12,983

13,833

14,736

15,694

Depreciation

310

310

310

436

462

490

520

551

584

435

4,210

9,644

13,454

14,369

15,231

16,145

17,113

18,140

19,229

Total Production Costs

Selling, General & Administrative

1,201

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

(1,201)

(435)

Operating Profit

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. exp.)

NA

NA

33.7x

33.8x

33.9x

33.9x

33.9x

33.9x

33.9x

33.9x

33.9x

4,610

310

310

2,192

826

875

928

983

1,043

1,105

0%

608%

-62%

6%

6%

6%

6%

Capital Expenditures
Growth in capex
Ending PP&E
Net Working Capital Accounts

6%
9,209

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

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

1,024

2,410

3,352

3,553

3,766

3,992

4,232

4,486

4,755

24

1,386

942

202

213

226

240

254

269

0.171

0.168

0.166

0.166

0.166

0.166

0.166

0.166

0.166

Cash

Net Working Capital

1,000

NWC

1,000
NWC/Sales

Ending Capital

2020

13,964

NPV Analysis
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

(721)

(261)

330

1,077

1,634

1,667

1,767

1,874

1,986

2,105

2,231

310

310

310

436

462

490

520

551

584

(1,000)

(24)

(1,386)

(942)

(202)

(213)

(226)

(240)

(254)

(269)

(310)

(310)

(2,192)

(826)

(875)

(928)

(983)

(1,043)

(1,105)

Free Cash Flows

NOPAT
plus depreciation
less NWC
less capital expenditures

(4,610)

Free Cash Flow

Terminal value

(5,331)
3.00% growth

Terminal value / Book Value

306

(309)

(1,190)

1,076

1,141

1,210

1,283

1,359

1,441
24,737
1.8

ROIC
Discount rate

(1,261)

16%
9.00%