Group Members:

Ariba Farrukh-16671, Daniyal Mustafa- 16726, Humaira Parvez-16685, Minhaj Uddin-16717, Zahra Waheed-16817

Report/Analysis of Financial Simulation of New Heritage's capital committee

As the CEO and the head of New Heritage's capital committee we had to decide which projects
to invest in. The requirement was to elect investments, evaluate new investment proposals and
submit annual capital plans over a period of 5 years, from 2010 – 2014.
The capital budget was dependent on the EBITDA of each year and each year’s capital budget
did not carry on to the next that is it lapsed within the same year. Hence along with the
evaluation of projects based on their NPV and IRR, we also had to consider the effect of these
projects on EBITDA of the following years.

Round 1:
For 2010 we a had capital budget of 5.88 Million that was 15 % of EBITDA in 2009. There
were 5 projects to choose from which are as follows with their respective financial details.

cost
Sr Discoun Profitabilit Initial Total
Project NPV IRR Payback carried
No. t Rate y Index Cost Cost
forward
toddler
1 7.14 25.06% 7.70% 8.7 3.34 2.14 3.14 1
doll
match my
2 6.46 20.69% 9% 9.21 1.41 4.57 5.57 1
doll
retail store
3 21.2 31.52% 10% 7.06 15.7 1.25 6.45 5.2
expansion
4 warehouse 3.13 14.82% 9.30% 8.23 0.42 7.5 10.5 3
5 new doll 9.37 238.61% 7.40% 1.43 8.93 1.05 3.5 2.45

We made 3 different set of projects combination which were:

  Combination 1 Combination 2 Combination 3
Project 1 match my doll toddler doll match my doll
Project 2 new doll retail store expansion retail store expansion
project 3  - new doll  -
Total
15.83 37.71 27.66
NPV
Initial
5.62 4.44 5.82
Cost

We chose combination 2 for 2010 investments as it had the lowest cost along with the Highest
cumulative NPV. Also, this combination provided investment in projects pertaining to all three
divisions of the company, production, retail and licensing.

Similar form of analysis was conducted for all the latter four rounds till 2014.

Round 2:
The EBITDA took a dip in 2010 end as per our expectations hence there was a decrease in
budget of 2011 and out of the pool of the proposed projects, the company could only afford 2
projects which were as follows:
Group Members:
Ariba Farrukh-16671, Daniyal Mustafa- 16726, Humaira Parvez-16685, Minhaj Uddin-16717, Zahra Waheed-16817

cost
Discount Profitability Initial Total
Sr No. Project NPV IRR Payback carried
Rate Index Cost Cost
forward
1 tween 6.12 43.54% 6.90% 5.24 13.59 0.45 1.61 1.16
expansion of
2
mail order 1.55 19.70% 8.50% >10 2.81 0.55 2.73 2.18

Since both the affordable projects had a positive NPV and a promising IRR, we moved ahead
with both the project mentioned above.

Round 3:
In 2011, we had a much better budget hence we could afford various projects, but we moved
forward with the following three projects because of their NPV, IRR, Payback period and
Profitability index along with their effect on future EBITDA.

The above projects were chosen because they had the following financial details:
cost
Discount Profitability Initial Total
Sr No. Project NPV IRR Payback carried
Rate Index Cost Cost
forward
1 dolls of the world 9.63 21.84% 9.00% 9.93 1.51 4.19 7.11 2.92
2 new inventory control
0.05 sys 4.89% 8.50% 1.16 0.39 0.13 0.19 0.06
3 doll video game 1.06 115.90% 7.40% 2.42 8.73 0.12 0.4 0.28

Round 4:
The company was continuing to have an increasing net income, EBITDA and hence growing
capital budget. In 2012 the EBITDA increased as the residual costs and expenses, related to
projects started in 2010 and 2011, were dying out. The projects finalized in 2012 for 2013 were
as follows:

Round 5:
The last round was based on similar analysis, the 5 projects finalized were as follows:
Group Members:
Ariba Farrukh-16671, Daniyal Mustafa- 16726, Humaira Parvez-16685, Minhaj Uddin-16717, Zahra Waheed-16817

After 5 years of investments on various projects, the company’s financial position was much
better due to the positive returns on the projects. The net income increased to almost 26 million
from 13 million, which is almost a 100% increase in Net income over period of 5 years.
Due to the projects initiated between 2010 to 2014, Net assets and Net Cashflows, both were
expected to grow by almost 50% by 2024. Adjusted present value escalated to 524.8.

The detailed forecasted financial statements, after the investments in all the selected projects
shown above, are attached below.

The following are the financial statements:

Group Members:
Ariba Farrukh-16671, Daniyal Mustafa- 16726, Humaira Parvez-16685, Minhaj Uddin-16717, Zahra Waheed-16817
Group Members:
Ariba Farrukh-16671, Daniyal Mustafa- 16726, Humaira Parvez-16685, Minhaj Uddin-16717, Zahra Waheed-16817
Group Members:
Ariba Farrukh-16671, Daniyal Mustafa- 16726, Humaira Parvez-16685, Minhaj Uddin-16717, Zahra Waheed-16817

Projects for all 5 years:

Adjusted present value was found to be 524.8