Case Study

Submitted by
Rajesh Goel-2013 D10
Shagun Goyal- 2013D19
Prashant Gupta-2013 D15

Major Findings

Decision: To Invest
Cost of Capital: 8.70%
Return on Capital: 2.86%
NPV- 12 year life: 427.95 million $
NPV-Longer Life: 4603.34 million $

Executive Summary
1. While doing the accounting return analysis ROC was coming very low which is less than the
hurdle rate (as indicated in major findings ). As ROC is less than the hurdle rate we conclude
that not to invest in this project
2. However when we did the incremental cash flow analysis NPV is coming positive with IRR
of 10.22% which is greater than hurdle rate we come to conclusion of Investing in this project
3. The difference in the decision arises due to the consideration of sunk costs& allocation of
existing g&a costs in case 1
4. For longer life NPV is coming positive with IRR of 19% indicating towards acceptance of
project
Assumptions
1.
2.
3.
4.
5.

It has been assumed the growth rate of 2.5% for calculating Terminal value
All the present investments are taken from year0
For the lease agreements rest of the years are matched with project time life of 12 years
Interest of Debt payments are considered as annuity payments for calculations
For calculating D/E market values are taken

WACC
Companies
V.F. Corporation
Ralph Lauren Corporation
Coach, Inc.
PVH Corp.
Under Armour, Inc.
Hanesbrands Inc.
Fossil Group, Inc.
Fifth & Pacific Companies, Inc.
Carter's, Inc.
Columbia Sportswear Company
Iconix Brand Group, Inc.
Tumi Holdings, Inc.
G-III Apparel Group, Ltd.
Quiksilver Inc.
Oxford Industries Inc.
The Jones Group Inc.
Movado Group, Inc.
Apparel Holding Corp.
Vera Bradley, Inc.
Unifi Inc.
Costa Inc.
Culp, Inc.
Perry Ellis International Inc.
Sequential Brands Group, Inc.
American Apparel, Inc.
Delta Apparel Inc.
Cherokee Inc.
Charles & Colvard Ltd.
Superior Uniform Group Inc.
Crown Crafts, Inc.
average

average levered beta

debt/equity
levered beta
unlevered beta
unlevered beta

Levered
Betas

Total Debt including Leases

Market
Cap

1.10
1.10
1.00
1.50
1.00
1.20
1.10
1.30
1.20
1.10
1.50
1.00
1.20
1.80
1.20
2.50
1.00
1.20
1.10
1.10
1.10
1.00
1.90
1.40
4.70
2.00
1.10
1.00
1.20
1.00

3069.80
2621.10
895.90
5740.50
220.20
1662.20
1048.60
1062.80
1125.50
227.60
1454.00
104.30
415.60
1152.40
454.60
1772.50
41.60
250.80
118.70
103.50
36.50
10.40
331.90
60.20
514.80
134.70
15.30
0.50
27.00
1.90

27448.60
15951.40
15742.40
11102.20
9221.80
6964.40
6621.30
3936.40
3914.40
2716.80
2047.60
1530.40
1508.70
1486.50
1324.00
1192.30
1118.10
1112.20
976.20
521.30
286.70
250.50
236.80
136.50
135.90
133.70
116.00
101.60
98.40
76.60

1.39

822.51
1.39
0.21
35.11
31.19
1.23

3933.66

weighted
market
cap

weighted
levered
beta

698%
406%
400%
282%
234%
177%
168%
100%
100%
69%
52%
39%
38%
38%
34%
30%
28%
28%
25%
13%
7%
6%
6%
3%
3%
3%
3%
3%
3%
2%

768%
446%
400%
423%
234%
212%
185%
130%
119%
76%
78%
39%
46%
68%
40%
76%
28%
34%
27%
15%
8%
6%
11%
5%
16%
7%
3%
3%
3%
2%
117%

debt

total debt
annuity of years
interest
cost of debt
total debt
after tax debt
lease debt

1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00

1394.00
6.00
61.00
4.15%

pv of
debt
1092.21
318.21
1410.43

2.49%

pv OF
lease
1060.97
1002.10
809.92
627.22
478.19
192.07
184.42
177.07
170.01
163.24
156.74crp of
150.49countries

2014.00 1105.00
2015.00 1087.00
2016.00
915.00
2017.00
738.00
2018.00
586.00
2019.00
245.14
2020.00
245.14
2021.00
245.14
2022.00country
245.14
risk
2023.00premium
245.14
2024.00
245.14
2025.00
245.14
us
total debt
5172.44
canada
europe
total debt
6582.87
asia
other regions
debt/equity
0.37
total crp
mature risk premium
cost cost
of capital
of equity

levered beta
default spread
risk free rate

1.51
mv of debt
mv of equiyt
1.65%
debt/capital
2.50%
equity

equity
number of stocks
price per stock
total equity

446.00
39.90
17795.40

0%
0%
2.13%
1.51%
2%

sales
78%
7%
5%
9%
1%
0.26%
5.38%
8.70%
10.99%

6582.87
17795.40
0.27
0.73
8.70%

Accounting Returns Analysis

NPV For 12 year life

npv
hurdle rate
irr

427.95
8.70%
10.22%

NPV Profile
5000
4000
3000
2000
1000
0
-1000
-2000
-3000
WACC

NPV NPV
60% 1777.91
62% 1507.92
Sensitivity Analysis 64% 1237.93
66%
967.93
NPV
68%
697.94
70%
427.95
72%
157.95
74% -112.04
76% -382.03
78% -652.02
80% -922.02
82% 1192.01
84% 1462.00
86% 1731.99
88% 2001.99
90% 2271.98
TAX
670.10
30%
642.58
31%
615.06
32%
587.55
33%
cogs

34%
35%
36%
37%
38%
39%
40%
41%
42%
43%
44%
45%

560.03
532.51
504.99
477.48
449.96
422.44
394.93
367.41
339.89
312.38
284.86
257.34

GROWTH
RATE
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%

-840.29
-623.04
-388.92
-136.64
135.16
427.95
743.29
1082.88
1448.50
1842.08
2265.68
2721.50
3211.88
3739.33
4306.53
4916.34

NPV-For longer life

npv
hurdle rate
irr

4603.34
8.70%
19%

Sensitivity Analysis

TAX
RATE
30%
31%
32%
33%
34%
35%
36%
37%
38%
39%
40%
41%
42%
43%
44%
45%

NPV
5472.65
5373.86
5275.08
5176.29
5077.51
4978.72
4879.93
4781.15
4682.36
4583.58
4484.79
4386.01
4287.22
4188.44
4089.65
3990.87

COGS
60%
62%
64%
66%
68%
70%
72%
74%
76%
78%
80%
82%
84%
86%
88%
90%
GROWTH
RATE

NPV NPV
8378.63
7623.57
6868.51
6113.45
5358.39
4603.34
3848.28
3093.22
2338.16
1583.10
828.04
72.98
-682.08
1437.13
2192.19
2947.25

1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%

133.65
862.25
1665.95
2552.00
3528.27
4603.34
5786.49
7087.84
8518.34
10089.86
11815.28
13708.53
15784.67
18060.00
20552.14
23280.08