New Heritage Doll Company: Capital Budgeting

NPV Analysis for Match My Doll Clothing Line Extension

2010

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%

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

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

Operating Profit

-1,250

583

994

1,277

1,392

1,503

1,623

1,753

1,893

2,045

2,209

Operating Profit/Sales

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

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

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

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

2010
-750
0

-750
3.00% growth

Discount rate

8.40%

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

2020
1,325
242
(180)
-530
857
16,345

Terminal value / Book Value

ROIC
Initial Outlays
Net working capital
Net property, plant & equipment

2011
350
152
(107)
-952
-557

2.6
21%

(800)
(1470)