New Heritage Doll Company: Capital Budgeting

Solution Sheet 1
NPV Analysis for Match My Doll Clothing Line Extension
2010

2011
4 500
NA

2012
6 860
52,44%

2013
8 409
22,58%

2014
9 082
8,00%

2015
9 808
8,00%

2016
10 593
8,00%

2017
11 440
8,00%

2018
12 355
8,00%

2019
13 344
8,00%

2020
14 411
8,00%

0
1 250
1 250

575
2 035
152
2 762
1 155
3 917

575
3 404
152
4 131
1 735
5 866

587
4 291
152
5 029
2 102
7 132

598
4 669
152
5 419
2 270
7 690

610
5 078
164
5 853
2 452
8 305

622
5 521
178
6 321
2 648
8 969

635
6 000
192
6 827
2 860
9 687

648
6 519
207
7 373
3 089
10 462

660
7 079
224
7 963
3 336
11 299

674
7 685
242
8 600
3 603
12 203

-1 250

583

994

1 277

1 392

1 503

1 623

1 753

1 893

2 045

2 209

3,0%
59,2x
7,7x
30,8x

3,0%
59,2x
8,3x
30,9x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

3,0%
59,2x
12,7x
31,0x

952

152

152

334

361

389

421

454

491

530

2011
135
729
360
317
907
107
20,15%

2012
206
1 112
500
484
1 334
427
19,45%

2013
252
1 363
396
593
1 418
84
16,87%

2014
272
1 472
427
640
1 531
113
16,86%

2015
294
1 590
461
692
1 653
122
16,86%

2016
318
1 717
498
747
1 786
132
16,86%

2017
343
1 855
538
807
1 929
143
16,86%

2018
371
2 003
581
871
2 083
154
16,86%

2019
400
2 163
627
941
2 250
167
16,86%

2020
432
2 336
677
1 016
2 429
180
16,86%

2010
-1 250
-500
-750
0
800
1 470
-3 020

2011
583
233
350
152
107
952
-557

2012
994
398
596
152
427
152
169

2013
1 277
511
766
152
84
152
682

2014
1 392
557
835
152
113
334
541

2015
1 503
601
902
164
122
361
583

2016
1 623
649
974
178
132
389
630

2017
1 753
701
1 052
192
143
421
680

2018
1 893
757
1 136
207
154
454
735

2019
2 045
818
1 227
224
167
491
793

2020
2 209
883
1 325
242
180
530
857
16 345

0
1,0000
-3020
7 150
-146

1
0,9225
-514

2
0,8510
144

3
0,7851
536

4
0,7242
392

5
0,6681
390

6
0,6163
388

7
0,5686
387

8
0,5245
385

9
0,4839
384

10
0,4464
383
7296

2010
-3 020
7,64%
-3020
23,99%

2011
-557

2012
169

2013
682

2014
541

2015
583

2016
630

2017
680

2018
735

2019
793

2020
857

2010
-3 020
-3 020
2018, that is the 8th after initial investment

2011
-557
-3 577

Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Depreciation
Total Production Costs
Selling, General & Administrative
Total Operating Expenses
Operating Profit
Working Capital Assumptions:
Minimum Cash Balance as % of Sales
Days Sales Outstanding
Inventory Turnover (prod. cost/ending inv.)
Days Payable Outstanding (based on tot. op. exp.)

NA
NA
NA
0,0x

Capital Expenditures

1 470

Net Working Capital Accounts

Cash (=as a % of Sales Revenue)
Accounts Receivable (=Revenue/365*Days Sales Outstanding)
Inventory (=Prodctn Costs/Inventory Turnover)
Accounts Payable (=Total Op Expenses/365*Days Payable Outstanding)
Net Working Capital
DNWC
NWC/Sales

2010

800

NPV Analysis
Free Cash Flows
EBIT
Taxes
Net Income
plus depreciation
less DNWC
less capital expenditures
Free Cash Flow
Terminal value

40%

3,00%

Initial Outlays
Net working capital
Net property, plant & equipment
PERIOD
Discount factor
Present value
Net Present Value
NPV without Terminal Value

8,40%

IRR Analysis
Cash Flows
IRR w/o Terminal Value
Cash Flows with Terminal Value
IRR with Terminal Value

Payback Analysis

Cash flows
Cumulative cash flow
Payback period

-557

169

2012
169
-3 408

682

2013
682
-2 726

541

2014
541
-2 185

583

2015
583
-1 602

630

2016
630
-972

680

735

2017
680
-291

2018
735
443
X

793

2019
793
1 237

17202

2020
857
2 094

2021

883

New Heritage Doll Company: Capital Budgeting

Solution Sheet 2
NPV Analyss for Design Your Own Doll
2010

2012
6 000
NA

2013
14 360
139,33%

1 650

1 683

1 717

1 751

1 786

1 822

1 858

1 895

1 933

0
1 201
1 201

0
0
0
0
0

2 250
310
4 210
1 240
5 450

7 651
310
9 644
2 922
12 566

11 427
310
13 454
4 044
17 498

12 182
436
14 369
4 287
18 656

12 983
462
15 231
4 544
19 775

13 833
490
16 145
4 817
20 962

14 736
520
17 113
5 106
22 219

15 694
551
18 140
5 412
23 553

16 712
584
19 229
5 737
24 966

-1 201

550

1 794

2 724

2 779

2 946

3 123

3 310

3 508

3 719

NA
NA
NA
NA

3,0%
59,2x
12,2x
33,7x

Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Additional development costs (IT personnel)
Variable Production Costs
Depreciation
Total Production Costs
Selling, General & Administrative
Total Operating Expenses
Operating Profit
Working Capital Assumptions:
Minimum Cash Balance as % of Sales
Days Sales Outstanding
Inventory Turnover (prod. cost/ending inv.)
Days Payable Outstanding (based on tot. op. exp.)

NA
NA
NA
NA

Capital Expenditures
Net Working Capital Accounts
Cash (=as a % of Sales Revenue)
Accounts Receivable (=Revenue/365*Days Sales Outstanding)
Inventory (=Prodctn Costs/Inventory Turnover)
Accounts Payable (=Total Op Expenses/365*Days Payable Outstanding)
Net Working Capital
DNWC
NWC/Sales

2011
0

4 610

2010

2011
0

1 000
1 000

310

3,0%
59,2x
12,3x
33,8x
310

2014
20 222
40,82%

3,0%
59,2x
12,6x
33,9x
2 192

2015
21 435
6,00%

3,0%
59,2x
12,7x
33,9x
826

2016
22 721
6,00%

3,0%
59,2x
12,7x
33,9x
875

2017
24 084
6,00%

3,0%
59,2x
12,7x
33,9x
928

2018
25 529
6,00%

3,0%
59,2x
12,7x
33,9x
983

2019
27 061
6,00%

3,0%
59,2x
12,7x
33,9x

2020
28 685
6,00%

2021

3,0%
59,2x
12,7x
33,9x

1 043

1 105

2012
180
973
346
474
1 024
24
17,07%

2013
431
2 328
786
1 135
2 410
1 386
16,78%

2014
607
3 278
1 065
1 598
3 352
942
16,57%

2015
643
3 475
1 130
1 694
3 553
202
16,58%

2016
682
3 683
1 197
1 796
3 766
213
16,58%

2017
723
3 904
1 269
1 904
3 992
226
16,58%

2018
766
4 139
1 345
2 018
4 232
240
16,58%

2019
812
4 387
1 426
2 139
4 486
254
16,58%

2020
861
4 650
1 512
2 267
4 755
269
16,58%

NPV Analysis
Free Cash Flows
EBIT
Taxes
Net Income
plus depreciation
less DNWC
less capital expenditures
Free Cash Flow
Terminal value

2010
-1 201
-480
-721
0
0
4 610
-5 331

2011
0
0
0
0
1 000
0
-1 000

2012
550
220
330
310
24
310
306

2013
1 794
718
1 077
310
1 386
310
-309

2014
2 724
1 089
1 634
310
942
2 192
-1 190

2015
2 779
1 112
1 667
436
202
826
1 076

2016
2 946
1 178
1 767
462
213
875
1 141

2017
3 123
1 249
1 874
490
226
928
1 210

2018
3 310
1 324
1 986
520
240
983
1 283

2019
3 508
1 403
2 105
551
254
1 043
1 359

2020
3 719
1 488
2 231
584
269
1 105
1 441
24 737

0
1,0000
-5 331
7 298
-3 152

1
0,9174
-917

2
0,8417
258

3
0,7722
-239

4
0,7084
-843

5
0,6499
700

6
0,5963
681

7
0,5470
662

8
0,5019
644

9
0,4604
626

10
0,4224
609
10 449

2010
-5 331
-0,024%
-5331
18,33%

2011
-1 000

2012
306

2013
-309

2014
-1 190

2015
1 076

2016
1 141

2017
1 210

2018
1 283

2019
1 359

2020
1 441

2010
-5 331
-5 331
2021, that is the 11th year after initial investment

2011
-1 000
-6 331

40%

3,00%

2021

1 484

Initial Outlays
Net working capital
Net property, plant & equipment
PERIOD
Discount factor
9,00%
Present value
Net Present Value
NPV without Terminal Value

IRR Analysis
Cash Flows
IRR
Cash Flows with Terminal Value
IRR with Terminal Value

-1000

306

-309

-1190

1076

1141

1210

1283

1359

1 484

26178

Payback Analysis
Cash flows
Cumulative cash flow
Payback period

2012
306
-6 025

2013
-309
-6 334

2014
-1 190
-7 523

2015
1 076
-6 447

2016
1 141
-5 305

2017
1 210
-4 096

2018
1 283
-2 813

2019
1 359
-1 454

2020
1 441
-13

1 484
1 472
X