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New Heritage Doll Company
LINE EXTENSION
Selected Operating Projections for Design Your Own Doll ($ in thousands)
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 52.4% 22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Production Costs
Fixed Production Expense (exlc. Depreciation)
Buzzell, Zuzana: Buzzell, Zuzana: Given 575 575 587 598 610 622 635 648 660 674
Variable Production Costs
Buzzell, Zuzana: Buzzell, Zuzana: Given 2,035 3,404 4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685
Depreciation
Buzzell, Zuzana: Buzzell, Zuzana: Given 152 152 152 152 164 178 192 207 224 242
Total Production Costs
Buzzell, Zuzana: Buzzell, Zuzana: Fixed Prod Exp+Variable Prod Cost+Depreciaton 2,762 4,131 5,030 5,419 5,852 6,321 6,827 7,374 7,963 8,601
Selling, General, & Administrative
Buzzell, Zuzana: Buzzell, Zuzana: Given 1,250 1,155 1,735 2,102 2,270 2,452 2,648 2,860 3,089 3,336 3,603
Total Operating Expense
Buzzell, Zuzana: Buzzell, Zuzana: Total Production Cost + Total Operating Expense $1,250 $3,917 $5,866 $7,132 $7,689 $8,304 $8,969 $9,687 $10,463 $11,299 $12,204
Operating Profit
Buzzell, Zuzana: Buzzell, Zuzana: Given ($1,250) $583 $994 $1,277 $1,393 $1,504 $1,624 $1,753 $1,892 $2,045 $2,207
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
Buzzell, Zuzana: Buzzell, Zuzana: Given NA NA 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Days Sales Outstanding
Buzzell, Zuzana: Buzzell, Zuzana: Given 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.)
Buzzell, Zuzana: Buzzell, Zuzana: Given 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.)
Buzzell, Zuzana: Buzzell, Zuzana: Given NA NA 33.7x 33.8x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x
Capital Expenditure
Buzzell, Zuzana: Buzzell, Zuzana: Given $1,470 $952 $152 $152 $334 $361 $389 $421 $454 $491 $530
Growth in Capex -35.24% -84.03% 0.00% 119.74% 8.08% 7.76% 8.23% 7.84% 8.15% 7.94%
MILESTONE #1 (hint: start by calculating Net Working Capital)
Step 1: Net Working Capital 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash
Buzzell, Zuzana: Buzzell, Zuzana: Given 135 206 252 272 294 318 343 371 400 432
Accounts Receivable
Buzzell, Zuzana: Buzzell, Zuzana: Given 729 1,112 1,363 1,472 1,590 1,717 1,855 2,003 2,163 2,336
Inventory
Buzzell, Zuzana: Buzzell, Zuzana: Given 360 500 396 427 461 498 538 581 627 677
Accounts Payable
Buzzell, Zuzana: Buzzell, Zuzana: Given 317 484 593 640 692 747 807 871 941 1,016
Net working Capital
Buzzell, Zuzana: Buzzell, Zuzana: Net Working Capital = Cash+AR+Inv-AP 800 907 1,334 1,418 1,531 1,653 1,786 1,929 2,084 2,249 2,429
ΔNWC 107 427 84 113 122 133 143 155 165 180
NWC/Sales 0.202 0.194 0.169 0.169 0.169 0.169 0.169 0.169 0.169 0.169
Step 2: NPV and IRR
NPV Analysis
Free Cash Flows 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
EBIT (1-t)
Buzzell, Zuzana: Buzzell, Zuzana: We assume Tax Rate of 40%
plus depreciation
less ΔNWC (107) (427) (84) (113) (122) (133) (143) (155) (165) (180)
less capital expenditures
Free Cash Flows
Buzzell, Zuzana: Buzzell, Zuzana: FCF= EBIT(1-t)+ depreciation + (lessΔNWC)+(less capital expenditure)
Terminal Value 3.00%
Buzzell, Zuzana: Buzzell, Zuzana: TV = [FCF(2020)*(1+TV rate)]/(discount factor+TV rate) 0
Intial Outlays
Net Working Capital
Buzzell, Zuzana: Buzzell, Zuzana: Given (800)
Net Property, plant & equipment
Buzzell, Zuzana: Buzzell, Zuzana: Given (1,470)
Discount Factor 8.40%
Buzzell, Zuzana: Buzzell, Zuzana: Discount Factor = (1/1+r)T 1.0000
Present Value with TV in 2020
Buzzell, Zuzana: Buzzell, Zuzana: PV=FCF*Discount Factor (2,270) 0 0 0 0 0 0 0 0 0 0
Present Value without TV in 2020 (2,270) 0 0 0 0 0 0 0 0 0 0
Net Present Value ($2,270)
NPV without Terminal Value ($2,270)
IRR analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash Flows (2,270) 0 0 0 0 0 0 0 0 0 0
IRR ERROR:#NUM!
MILESTONE #2
Payback Analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash Flows (including TV)
Buzzell, Zuzana: Buzzell, Zuzana: Using the same cash flow s for IRS analysis (2,270) 0 0 0 0 0 0 0 0 0 0
Cumulative Cash Flows (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270)
Payback Period (in years) Result in Years
5-year Cumulative EBITDA Calc Here
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Discounted Cash Flows (including TV)
Buzzell, Zuzana: Buzzell, Zuzana: This was calculated as part of the NPV analysis (2,270) 0 0 0 0 0 0 0 0 0 0
Cumulative Discounted Cash Flows (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270) (2,270)
Payback Period (in years) Result in Years
MILESTONE #3
Profitability Index
NPV/Initial Investment Calc Here
OWN DOLL
Selected Operating Projections for Design Your Own Doll ($ in thousands)
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 139.3% 40.8% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Production Costs
Fixed Production Expense (exlc. Depreciation)
Buzzell, Zuzana: Buzzell, Zuzana: Given 0 1,650 1,683 1,717 1,751 1,786 1,822 1,858 1,895 1,933
Additional development costs (IT)
Buzzell, Zuzana: Buzzell, Zuzana: Table #4 in the case study 435
Variable Production Costs
Buzzell, Zuzana: Buzzell, Zuzana: Given 0 2,250 7,651 11,427 12,182 12,983 13,833 14,736 15,694 16,712
Depreciation
Buzzell, Zuzana: Buzzell, Zuzana: Given 0 310 310 310 436 462 490 520 551 584
Total Production Costs
Buzzell, Zuzana: Buzzell, Zuzana: Fixed Prod Exp+Variable Prod Cost+Depreciaton 435 4,210 9,644 13,454 14,369 15,231 16,145 17,114 18,140 19,229
Selling, General, & Administrative
Buzzell, Zuzana: Buzzell, Zuzana: Given 1,201 0 1,240 2,922 4,044 4,287 4,544 4,817 5,106 5,412 5,737
Total Operating Expense
Buzzell, Zuzana: Buzzell, Zuzana: Total Production Cost + Total Operating Expense $1,201 $435 $5,450 $12,566 $17,498 $18,656 $19,775 $20,962 $22,220 $23,552 $24,966
Operating Profit
Buzzell, Zuzana: Buzzell, Zuzana: Given ($1,201) ($435) $550 $1,794 $2,724 $2,779 $2,946 $3,122 $3,309 $3,509 $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
Buzzell, Zuzana: Buzzell, Zuzana: Given NA NA 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Days Sales Outstanding
Buzzell, Zuzana: Buzzell, Zuzana: Given 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.)
Buzzell, Zuzana: Buzzell, Zuzana: Given 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.)
Buzzell, Zuzana: Buzzell, Zuzana: Given NA NA 33.7x 33.8x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x
Capital Expenditure $4,610 $0 $310 $310 $2,192 $826 $875 $928 $983 $1,043 $1,105
Growth in Capex 0.00% 607.10% -62.32% 5.93% 6.06% 5.93% 6.10% 5.94%
MILESTONE #1 (hint: start by calculating Net Working Capital)
Step 1: Net Working Capital 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash
Buzzell, Zuzana: Buzzell, Zuzana: Given 0 180 431 607 643 682 723 766 812 861
Accounts Receivable
Buzzell, Zuzana: Buzzell, Zuzana: Given 973 2,328 3,278 3,475 3,683 3,904 4,139 4,387 4,650
Inventory
Buzzell, Zuzana: Buzzell, Zuzana: Given 346 786 1,065 1,130 1,197 1,269 1,345 1,426 1,512
Accounts Payable
Buzzell, Zuzana: Buzzell, Zuzana: Given 474 1,135 1,598 1,694 1,796 1,904 2,018 2,139 2,267
Net working Capital
Buzzell, Zuzana: Buzzell, Zuzana: Net Working Capital = Cash+AR+Inv-AP 1,000 1,025 2,410 3,352 3,554 3,766 3,992 4,232 4,486 4,756
ΔNWC 1,000 25 1,385 942 202 212 226 240 254 270
NWC/Sales 0.171 0.168 0.166 0.166 0.166 0.166 0.166 0.166 0.166
Step 2: NPV and IRR
NPV Analysis
Free Cash Flows 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
EBIT (1-t)
Buzzell, Zuzana: Buzzell, Zuzana: We assume Tax Rate of 40%
plus depreciation
less ΔNWC
less capital expenditures
Free Cash Flows
Buzzell, Zuzana: Buzzell, Zuzana: FCF= EBIT(1-t)+ depreciation + (lessΔNWC)+(less capital expenditure) 0 0 0 0 0 0 0 0 0 0 0
Terminal Value 3.00%
Buzzell, Zuzana: Buzzell, Zuzana: TV = [FCF(2020)*(1+TV rate)]/(discount factor+TV rate) 0
Discount Factor 9.00%
Buzzell, Zuzana: Buzzell, Zuzana: Discount Factor = (1/1+r)T 1.0000
Present Value with TV in 2020
Buzzell, Zuzana: Buzzell, Zuzana: PV=FCF*Discount Factor 0 0 0 0 0 0 0 0 0 0 0
Present Value without TV in 2020 0 0 0 0 0 0 0 0 0 0 0
Net Present Value $0
NPV without Terminal Value $0
IRR analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash Flows 0 0 0 0 0 0 0 0 0 0 0
IRR ERROR:#NUM!
MILESTONE #2
Payback Analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Cash Flows (including TV)
Buzzell, Zuzana: Buzzell, Zuzana: Using the same cash flow s for IRS analysis 0 0 0 0 0 0 0 0 0 0 0
Cumulative Cash Flows 0 0 0 0 0 0 0 0 0 0 0
Payback Period (in years) Result in Years
5-year Cumulative EBITDA Calc Here
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Discounted Cash Flows (including TV)
Buzzell, Zuzana: Buzzell, Zuzana: This was calculated as part of the NPV analysis 0 0 0 0 0 0 0 0 0 0 0
Cumulative Discounted Cash Flows 0 0 0 0 0 0 0 0 0 0 0
Payback Period (in years) Result in Years
MILESTONE #3
Profitability Index
NPV/Initial Investment Calc Here
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