NHDC Solution.xls
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New Heritage Doll Company: Capital Budgeting Teaching Note TN Exhibit 1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Revenue 4,500 6,860 8,409 9,082 9,808 10,593 11,440 12,355 13,344 14,411 Revenue Growth NA 52.4% 22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Production Costs Fixed Production Expense (excl depreciation 575 575 587 598 610 622 635 648 660 674 Variable Production Costs 2,035 3,404 4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685 0.4522 0.4962 0.5103 0.5141 0.5178 0.5212 0.5245 0.5276 0.5305 0.5332 Depreciation 152 152 152 152 164 178 192 207 224 242 Total Production Costs 0 2,762 4,131 5,029 5,419 5,853 6,321 6,827 7,373 7,963 8,600 Selling, General & Administrativ 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 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 Sal 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/e NA 7.7x 8.3x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x Days Payable Outstanding (based 0.0x 30.8x 30.9x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x Capital Expenditures 1,470 952 152 152 334 361 389 421 454 491 530 Growth in capex -35.2% -84.0% 0.0% 119.3% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 0.2116 0.022187 0.0181 0.036756 0.036756 0.036752 0.036757 0.036754 0.036759 0.036756 Net Working Capital Accounts 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Cash 135 206 252 272 294 318 343 371 400 432 Accounts Receivable 729 1112 1363 1472 1590 1717 1855 2003 2163 2336 Inventory 360 500 396 427 461 498 538 581 627 677 Accounts Payable 317 484 593 640 692 747 807 871 941 1016 Net Working Capital 800 907 1334 1418 1531 1653 1786 1929 2083 2250 2429 800 107 427 84 113 122 132 143 154 167 180 NWC/Sales 0.202 0.195 0.169 0.169 0.169 0.169 0.169 0.169 0.169 0.169 NPV Analysis NPV Analysis for Match My Doll Clothing Line Extension DNWC
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New Heritage Doll Case Solutions
Transcript of NHDC Solution.xls
New Heritage Doll Company: Capital BudgetingTeaching NoteTN Exhibit 1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 4,500 6,860 8,409 9,082 9,808 10,593 11,440 12,355 13,344 14,411
Revenue Growth NA 52.4% 22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Production Costs
Fixed Production Expense (excl depreciation) 575 575 587 598 610 622 635 648 660 674
Variable Production Costs 2,035 3,404 4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685
0.4522 0.4962 0.5103 0.5141 0.5178 0.5212 0.5245 0.5276 0.5305 0.5332
Depreciation 152 152 152 152 164 178 192 207 224 242
Total Production Costs 0 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
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 NA 7.7x 8.3x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x
Days Payable Outstanding (based on tot 0.0x 30.8x 30.9x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x
Capital Expenditures 1,470 952 152 152 334 361 389 421 454 491 530
Growth in capex -35.2% -84.0% 0.0% 119.3% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%0.2116 0.022187 0.0181 0.036756 0.036756 0.036752 0.036757 0.036754 0.036759 0.036756
Net Working Capital Accounts 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Cash 135 206 252 272 294 318 343 371 400 432Accounts Receivable 729 1112 1363 1472 1590 1717 1855 2003 2163 2336Inventory 360 500 396 427 461 498 538 581 627 677Accounts Payable 317 484 593 640 692 747 807 871 941 1016Net Working Capital 800 907 1334 1418 1531 1653 1786 1929 2083 2250 2429
800 107 427 84 113 122 132 143 154 167 180NWC/Sales 0.202 0.195 0.169 0.169 0.169 0.169 0.169 0.169 0.169 0.169
NPV Analysis for Match My Doll Clothing Line Extension
DNWC
F34
Tarun: Opex exculding depreciation 3917-152/365 X 30.8
NPV Analysis
Free Cash Flows 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EBIT(1-t) (750) 350 596 766 835 902 974 1,052 1,136 1,227 1,325 plus depreciation 0 152 152 152 152 164 178 192 207 224 242
(800) (107) (427) (84) (113) (122) (132) (143) (154) (167) (180)less capital expenditures (1,470) (952) (152) (152) (334) (361) (389) (421) (454) (491) (530)Free Cash Flow (3,020) (557) 169 682 541 583 630 680 735 793 857
Terminal value 3.00% 16,345
Initial OutlaysNet working capital (800)Net property, plant & equipmen (1470)
Discount factor 8.40% 1.0000 0.9225 0.8510 0.7851 0.7242 0.6681 0.6163 0.5686 0.5245 0.4839 0.4464Present value (3,020) (514) 144 536 392 390 388 387 385 384 7679Net Present Value $ 7,150 NPV without Terminal Value $ (146)
IRR Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash Flows (3,020) (557) 169 682 541 583 630 680 735 793 17,202 IRR 7.6%
Payback Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash flows (3,020) (557) 169 682 541 583 630 680 735 793 17,202 Cumulative cash flow (3,020) (3,577) (3,408) (2,726) (2,185) (1,602) (972) (291) 443 Payback period 7.40 years
5-year Cumulative EBITDA $ 6,522
Profitability IndexNPV/Initial Investment 1.35
less DNWC
New Heritage Doll Company: Capital BudgetingTeaching NoteTN Exhibit 2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 0 6,000 14,360 20,222 21,435 22,721 24,084 25,529 27,061 28,685
Revenue Growth NA 139.3% 40.8% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Production Costs
Fixed Production Expense (excl depreciation) 0 1,650 1,683 1,717 1,751 1,786 1,822 1,858 1,895 1,933
Additional development costs (IT personnel) 435
Variable Production Costs 0 2,250 7,651 11,427 12,182 12,983 13,833 14,736 15,694 16,712
Depreciation 0 310 310 310 436 462 490 520 551 584
Total Production Costs 0 435 4,210 9,644 13,454 14,369 15,231 16,145 17,113 18,140 19,229
Selling, General & Administrative 1,201 0 1,240 2,922 4,044 4,287 4,544 4,817 5,106 5,412 5,737
Total Operating Expenses 1,201 435 5,450 12,566 17,498 18,656 19,775 20,962 22,219 23,553 24,966
Operating Profit (1,201) (435) 550 1,794 2,724 2,779 2,946 3,123 3,310 3,508 3,719
Operating Profit/Sales 0.092 0.125 0.135 0.130 0.130 0.130 0.130 0.130 0.130
SG&A/Sales 0.207 0.203 0.200 0.200 0.200 0.200 0.200 0.200 0.200
Working Capital Assumptions:
Minimum Cash Balance as % of Sales NA NA 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Days Sales Outstanding NA NA 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x
Inventory Turnover (prod. cost/ending inv.) NA NA 12.2x 12.3x 12.6x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x
Days Payable Outstanding (based on tot. op. exp.) NA NA 33.7x 33.8x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x
Capital Expenditures 4,610 0 310 310 2,192 826 875 928 983 1,043 1,105
Growth in capex 0% 608% -62% 6% 6% 6% 6% 6%
0.052 0.022 0.108 0.039 0.039 0.039 0.039 0.039 0.039
Net Working Capital Accounts 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash 0 180 431 607 643 682 723 766 812 861
Accounts Receivable 973 2328 3278 3475 3683 3904 4139 4387 4650
Inventory 346 786 1065 1130 1197 1269 1345 1426 1512
Accounts Payable 474 1135 1598 1694 1796 1904 2018 2139 2267
Net Working Capital 1,000 1,024 2,410 3,352 3,553 3,766 3,992 4,232 4,486 4,755
1,000 24 1,386 942 202 213 226 240 254 269
NWC/Sales 0.171 0.168 0.166 0.166 0.166 0.166 0.166 0.166 0.166
NPV Analyss for Design Your Own Doll
DNWC
NPV Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Free Cash Flows
EBIT(1-t) (721) (261) 330 1,077 1,634 1,667 1,767 1,874 1,986 2,105 2,231
plus depreciation 0 310 310 310 436 462 490 520 551 584
(1,000) (24) (1,386) (942) (202) (213) (226) (240) (254) (269)
less capital expenditures (4,610) 0 (310) (310) (2,192) (826) (875) (928) (983) (1,043) (1,105)
Free Cash Flow (5,331) (1,261) 306 (309) (1,190) 1,076 1,141 1,210 1,283 1,359 1,441
Terminal value 3.00% 24,737
Discount factor 9.00% 1.000 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 0.5019 0.4604 0.4224
Present value (5,331) (1,157) 258 (239) (843) 700 681 662 644 626 11,058
Net Present Value $ 7,058
NPV without Terminal Value $ (3,391)
IRR Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash Flows (5,331) (1,261) 306 (309) (1,190) 1,076 1,141 1,210 1,283 1,359 26,178 IRR -0.5%
Payback Analysis2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash flows (5,331) (1,261) 306 (309) (1,190) 1,076 1,141 1,210 1,283 1,359 26,178 Cumulative cash flow (5,331) (6,592) (6,286) (6,595) (7,784) (6,708) (5,566) (4,357) (3,074) (1,715) 24,464 Payback period >10 years
5-year Cumulative EBITDA $ 8,778
Profitability IndexNPV/Initial Investment 1.32
less DNWC
New Heritage Doll Company: Capital BudgetingTeaching NoteTN Exhibit 3 NPV Sensitivity Analyses
NPV if TV growth rate TV=BV of
Discount rate 0% 1% 2% 3% NWC + PPE7.70% $ 5,289 $ 6,141 $ 7,292 $ 8,932 $ 3,011 8.40% $ 4,408 $ 5,075 $ 5,950 $ 7,150 $ 2,687 9.00% $ 3,766 $ 4,314 $ 5,019 $ 5,958 $ 2,425
NPV if TV growth rate TV=BV of
Discount rate 0% 1% 2% 3% NWC + PPE7.70% $ 5,830 $ 7,263 $ 9,198 $ 11,957 $ 3,567 8.40% $ 4,404 $ 5,526 $ 6,998 $ 9,016 $ 2,980 9.00% $ 3,372 $ 4,294 $ 5,479 $ 7,058 $ 2,507
NPV of Match My Doll Clothing Line Extension
NPV of Design Your Own Doll
