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

e Expansion

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
Addiittional Development Cost (IT Personnel) 435
Variable Production Costs 0 2,250 7,651 11,427 12,182
Depreciation 0 310 310 310 436
Total Production Costs 435 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 1,201 435 5,450 12,566 17,498 18,656

Operating Profit (1,201) (435) 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
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

Working Capital Requirement

Cash - 135.00 205.80 252.26 272.45 294.24

Accounts Receivable - 729.49 1112.07 1363.15 1472.20 1589.97
Inventory - 359.66 500.12 396.01 426.72 460.86
Accounts Payable - 330.12 496.60 605.88 653.31 705.58

Net Working Capital changes - 894.04 1321.39 1405.53 1518.06 1639.49

Tax Rate 40% 40% 40% 40% 40% 40%

Free Cash flow -2220.00 -1344.36 -724.99 -639.15 -864.58 -933.73

Discount Rate 8.40% 8.40% 8.40% 8.40% 8.40% 8.40%

Net Present value ₹ -2,404.14 ₹ -577.38 ₹ 259.82 ₹ 550.69 ₹ 472.16 ₹ 509.90

Revenue 0 4,500 6,860 8,409 9,082 9,808

Total Operating Expenses (1,250) (3,917) (5,866) (7,132) (7,690) (8,305)
Capital Expenditures (1,470) (952) (152) (152) (334) (361)
Net Working Capital changes - -894 -1,321 -1,406 -1,518 -1,639
IRR Err:523 19% 5% 2% 4% 4%

Payback period
 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

317.78 343.20 370.66 400.31 432.34

1717.17 1854.55 2002.90 2163.14 2336.19
497.72 537.54 580.56 626.99 677.16
762.01 822.98 888.83 959.93 1036.73

1770.66 1912.31 2065.28 2230.52 2408.96

40% 40% 40% 40% 40%

-1008.39 -1089.15 -1176.30 -1270.42 -488.66

8.40% 8.40% 8.40% 8.40% 8.40%

₹ 550.81 ₹ 594.78 ₹ 642.20 ₹ 693.72 ₹ 749.16

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

(8,969) (9,687) (10,462) (11,299) (12,203)
(389) (421) (454) (491) (530)
-1,771 -1,912 -2,065 -2,231 -2,409
4% 4% 4% 4% 4%
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
Addiittional Development Cost (IT Personnel) 435
Variable Production Costs 0 2,250 7,651 11,427
Depreciation 0 310 310 310
Total Production Costs 435 4,210 9,644 13,454
Selling, General & Administrative 1,201 0 1,240 2,922 4,044
Total Operating Expenses 1,201 435 5,450 12,566 17,498

Operating Profit (1,201) (435) 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

Working Capital Requirement

Cash - - 180.00 430.80 606.65

Accounts Receivable - - 972.66 2,327.89 3,278.12
Inventory - - 345.62 785.96 1,065.21
Accounts Payable - - 502.72 1,163.62 1,627.07

Net Working Capital changes - - 995.57 2,381.03 3,322.91

Tax Rate 40% 40% 40% 40% 40%

Free Cash flow -5,330.60 -261.00 -665.39 -1,304.45 -3,570.49

Discount Rate 8.40% 8.40% 8.40% 8.40% 8.40%

Net Present value -4,727.14 -370.20 -108.66 459.94 -432.42

Revenue 0 0 6,000 14,360 20,222

Total Operating Expenses (1,201) (435) (5,450) (12,566) (17,498)
Capital Expenditures (4,610) 0 (310) (310) (2,192)
Net Working Capital changes - - -995.57 -2,381.03 -3,322.91

IRR Err:523 Err:523 9% 5% 10%

Payback period
 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

643.04 681.63 722.53 765.88 811.83 860.54

3,474.79 3,683.28 3,904.28 4,138.54 4,386.86 4,650.06
1,129.61 1,197.41 1,269.25 1,345.39 1,426.12 1,511.70
1,734.72 1,838.81 1,949.14 2,066.08 2,190.06 2,321.47

3,512.73 3,723.50 3,946.91 4,183.74 4,434.75 4,700.84

40% 40% 40% 40% 40% 40%

-2,234.71 -2,368.92 -2,511.05 -2,661.58 -2,821.42 -2,990.64

8.40% 8.40% 8.40% 8.40% 8.40% 8.40%

541.68 574.01 608.51 645.19 683.71 724.71

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

(18,656) (19,775) (20,962) (22,219) (23,553) (24,966)
(826) (875) (928) (983) (1,043) (1,105)
-3,512.73 -3,723.50 -3,946.91 -4,183.74 -4,434.75 -4,700.84

5% 5% 5% 5% 5% 5%