RATE GROWTH

8%

New Heritage Doll Company: Capital Budgeting

Teaching Note
TN Exhibit 1
NPV Analysis for Match My Doll Clothing Line Extension
0.87
2011

2010
Revenue

4,500

Revenue Growth

0.86
2012

0.85
2013

0.85
2014

0.85
2015

0.85
2016

0.85
2017

0.85
2018

0.85
2019

0.85
2020

6,860

8,409

9,081

9,808

10,593

11,440

12,355

13,344

14,411

52.4%

86.9%

101.8%

118.0%

135.4%

154.2%

174.6%

196.5%

220.2%

Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Depreciation

575

575

587

598

610

622

635

648

660

674

2,035

3,404

4,291

4,669

5,078

5,521

6,000

6,519

7,079

7,685

152

152

152

152

164

178

192

207

224

242

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

(1,250)

583

994

1,277

1,392

1,503

1,623

1,753

1,893

2,045

2,208

Total Production Costs

Operating Profit
Working Capital Assumptions:
Minimum Cash Balance as % of Sales

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

Days Sales Outstanding

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 inv.)

Days Payable Outstanding (based on tot. op. exp.)
Capital Expenditures

1,470

7.7x

8.3x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

12.7x

30.8x

30.9x

31.0x

31.0x

31.0x

31.0x

31.0x

31.0x

31.0x

31.0x

952

152

152

334

361

389

421

454

491

530

Net Working Capital

2010
Cash
Accounts Receivable
Inventory
Accounts Payable
Net Working Capital
NWC

800
-800

2011
135
729
340
317
887
-87

2012
206
1112
482
484
1316
-429

2013
252
1363
384
593
1406
-91

2014
272
1472
415
640
1519
-113

2015
294
1590
448
692
1641
-122

2016
318
1717
484
747
1772
-131

2017
343
1855
522
807
1913
-142

2018
371
2003
564
871
2067
-153

2019
400
2163
609
941
2232
-165

2020
432
2336
658
1016
2410
-179

ASSUMPTION
LOW PERPETUAL GROWTH RATE

EBIT
Impuestos
Depreciacion
NOPAT
CAPEX
Inv k de w

3.00%

-1,250
500
-750
-1,470
-800

583
-233
152
502
-952
-87

994
-398
152
748
-152
-429

1,277
-511
152
919
-152
-91

1,392
-557
152
987
-334
-113

1,503
-601
164
1,066
-361
-122

1,623
-649
178
1,152
-389
-131

1,753
-701
192
1,244
-421
-142

1,893
-757
207
1,343
-454
-153

2,045
-818
224
1,451
-491
-165

2,208
-883
242
1,567
-530
-179

Recuperacion k w
OCF
Perpetuity
TOTAL CF
Discount period
Discount factor

PRESENT VALUE

-3,020

-537

168

676

541

584

631

681

736

795

-3,020
0
1.00
-3,020

-537
1
0.92
-496
-3,516

168
2
0.85
143
-3,373

676
3
0.79
530
-2,843

541
4
0.72
392
-2,451

584
5
0.67
390
-2,061

631
6
0.62
389
-1,672

681
7
0.57
387
-1,284

736
8
0.52
386
-898

795
9
0.48
385
-514

16,371

Cumulative cash flow

CCPP
VAN
TIR
Profitability Index

8.40%
7,177
24.06%
2.38

VAN
Risk level
Low
Medium
High

858

Rate
7.7%
8.4%
9.0%

7,177

TIR
24.06%

PI
2.38
2.97
2.38
1.98

17,229
10
0.45
7,691
7,177

RATE GROWTH

6%

New Heritage Doll Company: Capital Budgeting

Teaching Note
TN Exhibit 2
NPV Analyss for Design Your Own Doll
2010

2011

Revenue

2012
0

6,000

139.33%

237.03%

257.25%

2013

2014

2015

278.69%
2016

301.41%
2017

325.49%
2018

351.02%
2019

378.08%
2020

14,360

20,222

21,435

22,721

24,084

25,529

27,061

28,685

139.33%

40.82%

6.00%

6.0%

6.0%

6.0%

6.0%

6.0%

1,650

1,683

1,717

1,751

1,786

1,822

1,858

1,895

1,933
16,712

Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)

Additional development costs (IT personnel)

435

Variable Production Costs

2,250

7,651

11,427

12,182

12,983

13,833

14,736

15,694

Depreciation

310

310

310

436

462

490

520

551

584

435

4,210

9,644

13,454

14,369

15,231

16,145

17,113

18,140

19,229

Total Production Costs

Selling, General & Administrative

1,201

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

90.8%

87.5%

86.5%

87.0%

87.0%

87.0%

87.0%

87.0%

87.0%

(1,201)

(435)

550

1,794

2,724

2,779

2,946

3,123

3,310

3,509

3,719

Operating Profit
Working Capital Assumptions:
Minimum Cash Balance as % of Sales

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

Days Sales Outstanding

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

59.2x

Inventory Turnover (prod. cost/ending inv.)

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.)

33.7x

33.8x

33.9x

33.9x

33.9x

33.9x

33.9x

33.9x

33.9x

310

310

2,192

826

875

928

983

1,043

1,105

Capital Expenditures

4,610

Net Working Capital Accounts

2010

Cash

2011

2012
0

2013

2014

2015

2016

2017

2018

2019

2020

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

3,767

3,993

4,232

4,486

4,755

NWC

-1000

-24

-1386

-942

-202

-213

-226

-240

-254

-269

ASSUMPTION
LOW PERPETUAL GROWTH RATE

EBIT
Impuestos
Depreciacion

3.00%

-1,201
480
-

-435
174
-

550
-220
310

1,794
-718
310

2,724
-1,090
310

2,779
-1,112
436

2,946
-1,178
462

3,123
-1,249
490

3,310
-1,324
520

3,509
-1,403
551

3,719
-1,488
584

NOPAT
CAPEX
Inv k de w
Recuperacion k w
OCF
Perpetuity
TOTAL CF
Discount period
Discount factor

PRESENT VALUE

-721
-4,610
-

-261
-1,000

640
-310
-24

1,386
-310
-1,386

1,944
-2,192
-942

2,104
-826
-202

2,230
-875
-213

2,364
-928
-226

2,506
-983
-240

2,656
-1,043
-254

2,815
-1,105
-269

-5,331

-1,261

306

-309

-1,190

1,077

1,141

1,210

1,283

1,360

1,441

-5,331
0
1.00
-5,331

-1,261
1
0.92
-1,163
-6,494

306
2
0.85
260
-6,233

-309
3
0.79
-243
-6,476

-1,190
4
0.72
-862
-7,338

1,077
5
0.67
719
-6,618

1,141
6
0.62
704
-5,915

1,210
7
0.57
688
-5,227

1,283
8
0.52
673
-4,554

1,360
9
0.48
658
-3,896

28,929
10
0.45
12,914
9,017

VAN
9,017

TIR
18.89%

27,488

Cumulative cash flow

CCPP
VAN
TIR
Profitability Index

Risk level
Low
Medium
High

8.40%
9,017
18.89%
1.39

Rate
7.7%
8.4%
9.0%

PI
1.39
1.84
1.39
1.09