New Heritage Doll Company: Capital Budgeting

Exhibit 1 Selected Operating Projections for Match My Doll Clothing Line Expansion

2010 2011 2012 2013 2014 2015

Revenue 4,500 6,860 8,409 9,082 9,808
Revenue Growth 52.4% 22.6% 8.0% 8.0%
Production Costs
Fixed Production Expense (excl depreciation) 575 575 587 598 610
Variable Production Costs 2,035 3,404 4,291 4,669 5,078
Depreciation 152 152 152 152 164
Total Production Costs 0 2,762 4,131 5,029 5,419 5,853
Selling, General & Administrative 1,250 1,155 1,735 2,102 2,270 2,452
Total Operating Expenses 1,250 3,917 5,866 7,132 7,690 8,305

Operating Profit (1,250) 583 994 1,277 1,392 1,503

Working Capital Assumptions:

Minimum Cash Balance as % of Sales 3.0% 3.0% 3.0% 3.0% 3.0%
Days Sales Outstanding 59.2x 59.2x 59.2x 59.2x 59.2x
Inventory Turnover (prod. cost/ending inv.) 7.7x 8.3x 12.7x 12.7x 12.7x
Days Payable Outstanding (based on tot. op. exp.) 30.8x 30.9x 31.0x 31.0x 31.0x

Capital Expenditures 1,470 952 152 152 334 361

 2016 2017 2018 2019 2020
10,593 11,440 12,355 13,344 14,411
8.0% 8.0% 8.0% 8.0% 8.0%

622 635 648 660 674

5,521 6,000 6,519 7,079 7,685
178 192 207 224 242
6,321 6,827 7,373 7,963 8,600
2,648 2,860 3,089 3,336 3,603
8,969 9,687 10,462 11,299 12,203

1,623 1,753 1,893 2,045 2,209

3.0% 3.0% 3.0% 3.0% 3.0%

59.2x 59.2x 59.2x 59.2x 59.2x
12.7x 12.7x 12.7x 12.7x 12.7x
31.0x 31.0x 31.0x 31.0x 31.0x

389 421 454 491 530

New Heritage Doll Company: Capital Budgeting
Exhibit 2 Selected Operating Projections for Design Your Own Doll

2010 2011 2012 2013 2014 2015

Revenue 0 6,000 14,360 20,222 21,435
Revenue Growth 139.3% 40.8% 6.0%
Production Costs
Fixed Production Expense (excl depreciation) 0 1,650 1,683 1,717 1,751
Variable Production Costs 0 2,250 7,651 11,427 12,182
Depreciation 0 310 310 310 436
Total Production Costs 0 4,210 9,644 13,454 14,369
Selling, General & Administrative 1,201 0 1,240 2,922 4,044 4,287
Total Operating Expenses 1,201 0 5,450 12,566 17,498 18,656

Operating Profit (1,201) 0 550 1,794 2,724 2,779

Working Capital Assumptions:

Minimum Cash Balance as % of Sales 3.0% 3.0% 3.0% 3.0%
Days Sales Outstanding 59.2x 59.2x 59.2x 59.2x
Inventory Turnover (prod. cost/ending inv.) 12.2x 12.3x 12.6x 12.7x
Days Payable Outstanding (based on tot. op. exp.) 33.7x 33.8x 33.9x 33.9x

Capital Expenditures 4,610 0 310 310 2,192 826

 2016 2017 2018 2019 2020
22,721 24,084 25,529 27,061 28,685
6.0% 6.0% 6.0% 6.0% 6.0%

1,786 1,822 1,858 1,895 1,933

12,983 13,833 14,736 15,694 16,712
462 490 520 551 584
15,231 16,145 17,113 18,140 19,229
4,544 4,817 5,106 5,412 5,737
19,775 20,962 22,219 23,553 24,966

2,946 3,123 3,310 3,509 3,719

3.0% 3.0% 3.0% 3.0% 3.0%

59.2x 59.2x 59.2x 59.2x 59.2x
12.7x 12.7x 12.7x 12.7x 12.7x
33.9x 33.9x 33.9x 33.9x 33.9x

875 928 983 1,043 1,105

New Heritage Doll Company: Capital Budgeting Analysis
Match My Doll Clothing Line Expansion Cashflow Estimation and Investment Analysis

2010 2011 2012 2013 2014

Revenue 4,500 6,860 8,409 9,082

less Variable Production Costs
Contribution
less Fixed Production Costs
less R & D expenditure -625
less Selling, Mkt, General and Admin Exp. -625
Operating Profit
less Depreciation
Earnings before Tax
less Tax
Earnings after Tax
add Depreciation
less Add. WC required -800
less Capex -1470
=
Cashflow -3520
add Terminal Cashflow @ 3% growth rate

Cashflow for the year -3520 0 0 0 0

Estimation of Working Capital Required

Cash Balance (0.03 x Sales)

add A/c Receivables
add Inventory
less A/c Payables
=
Net WC for the year 0 0 0 0 0
2015 2016 2017 2018 2019 2020

9,808 10,593 11,440 12,355 13,344 14,411

0 0 0 0 0 0

0 0 0 0 0 0
New Heritage Doll Company: Capital Budgeting Analysis
Design Your Own Doll Cashflow Estimation and Investment Analysis

2010 2011 2012 2013 2014

Revenue 6,000 14,360 20,222

less Variable Production Costs
Contribution
less Fixed Production Costs
less R & D expenditure -841
less Selling, Mkt, General and Admin Exp. -360
Operating Profit
less Depreciation
Earnings before Tax
less Tax
Earnings after Tax
add Depreciation
less Add. WC required -1000
less Capex -4610
=
Cashflow -5811 (1,000) 6,000 14,360 20,222
add Terminal Cashflow @ 3% growth rate

Cashflow for the year -5811 (1,000) 6,000 14,360 20,222

Estimation of Working Capital Required

Cash Balance (0.03 x Sales)

add A/c Receivables
add Inventory
less A/c Payables
=
Net WC for the year 0 0 0 0 0
 2015 2016 2017 2018 2019 2020

21,435 22,721 24,084 25,529 27,061 28,685

21,435 22,721 24,084 25,529 27,061 28,685

21,435 22,721 24,084 25,529 27,061 28,685

0 0 0 0 0 0