New Heritage Doll Company: Capital Budgeting

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

2010 2011 2012 2013 2014

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

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

adjustements
40% tax (500) 233 398 511 557
net income (750) 350 596 766 835
dep 152 152 152 152
less dnwc 94 428 84 113
less capital expenditure 1,470 952 152 152 334
free cash flo , without terminal (3,020) (545) 169 682 541
FCF with terminal (3,020) (545) 169 682 541
pay back M.r 16.8%
NPV(with ter 0.00 growth rate 2.5%
IRR 16.788% 17
net working capital accounts 2011 2012 2013 2014
cash 135 206 252 272
account recivables 729.9 1,112.6 1,363.8 1,472.9
inventory 359.7 500.1 396.0 426.7
account payable 330.1 496.6 605.9 653.3
working capital 800 894 1,322 1,406 1,519
differ 94 428 84 113
nwc/sales 0.20 0.19 0.17 0.17

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.) 7.7x 8.3x 12.7x 12.7x
Days Payable Outstanding (based on tot. op. exp.) 30.8x 30.9x 31.0x 31.0x

Capital Expenditures 1,470 952 152 152 334

 2015 2016 2017 2018 2019 2020
9,808 10,593 11,440 12,355 13,344 14,411
8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

610 622 635 648 660 674 729.863

5,078 5,521 6,000 6,519 7,079 7,685
164 178 192 207 224 242
5,853 6,321 6,827 7,373 7,963 8,600
2,452 2,648 2,860 3,089 3,336 3,603
8,305 8,969 9,687 10,462 11,299 12,203

1,503 1,623 1,753 1,893 2,045 2,209 initial outlays

wc 800
601 649 701 757 818 883 nvestemen 1470
902 974 1,052 1,136 1,227 1,325 disc rate 8.40%
164 178 192 207 224 242
121 131 142 153 165 179
361 389 421 454 491 530
584 632 682 736 795 859 5,678
584 632 682 736 795 7,020
6,161
1,305

2015 2016 2017 2018 2019 2020

294 318 343 371 400 432
1,590.8 1,718.0 1,855.5 2,003.9 2,164.2 2,337.4
460.9 497.7 537.5 580.6 627.0 677.2
705.6 762.0 823.0 888.8 959.9 1,036.7
1,640 1,772 1,913 2,066 2,232 2,410
121 131 142 153 165 179
0.17 0.17 0.17 0.17 0.17 0.17

3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

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

361 389 421 454 491 530 4,235

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

2010 2011 2012 2013 2014

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

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

Working Capital Assumptions:

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

Capital Expenditures 4,610 0 310 310 2,192

net working capital accounts 2,010 2,011 2,012 2,013 2,014

cash 180 431 607
account recivables 973.2 2,329.1 3,279.8
inventory 345.057 790.467 1,102.754
account payable 503.2 1,160.2 1,615.6
working capital 995 2,390 3,374
differ 1,395 983
nwc/sales

adjustements 2,010 2,011 2,012 2,013 2,014

40% tax 220 718 1,089
net income 330 1,077 1,634
dep 310 310 310
less dnwc 1,395 983
less capital expenditure 4,610 0 310 310 2,192
free cash flow (5,610) 330 (318) (1,231)
pay back 4
NPV 6,417.24
IRR 18.634%
 2015 2016 2017 2018 2019 2020
21,435 22,721 24,084 25,529 27,061 28,685
6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

1,751 1,786 1,822 1,858 1,895 1,933

12,182 12,983 13,833 14,736 15,694 16,712
436 462 490 520 551 584
14,369 15,231 16,145 17,113 18,140 19,229
4,287 4,544 4,817 5,106 5,412 5,737
18,656 19,775 20,962 22,219 23,553 24,966

2,779 2,946 3,123 3,310 3,509 3,719

3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

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

826 875 928 983 1,043 1,105

2,015 2,016 2,017 2,018 2,019 2,020

643 682 723 766 812 861
3,476.5 3,685.1 3,906.3 4,140.6 4,389.1 4,652.4
1,177.762 1,248.443 1,323.344 1,402.738 1,486.910 1,576.131
1,722.4 1,825.8 1,935.4 2,051.5 2,174.6 2,305.1
3,575 3,789 4,017 4,258 4,513 4,784
201 214 227 241 255 271

2,015 2,016 2,017 2,018 2,019 2,020

1,112 1,178 1,249 1,324 1,403 1,488
1,668 1,767 1,874 1,986 2,105 2,231
436 462 490 520 551 584
201 214 227 241 255 271
826 875 928 983 1,043 1,105
1,077 1,140 1,208 1,282 1,358 19,080