New Heritage Doll Company
Summary
Particulars MMDC DYOD
NPV 7,222 7,063 MMDC
IRR 24.8% 17.9% MMDC
PI 3.25 1.32 MMDC
Payback period 8.57 9.99 DYOD
MMDC DYOD
PV of explicit forecasting period (74) (3,373)
PV of terminal value 7,296 10,436
Total 7,222 7,063
MMDC
Moderate risk
Tax rate 40% R&D and Marekting Expenditures to be excluded
Discount rate 8.40%
Growth rate after 10 years 3.0%
Exhibit 1
Year 2010 2011 2012 2013 2014 2015
Revenue growth rate Exhibit 1 52.40% 22.60% 8.00% 8.00%
Revenue Exhibit 1 4,500 6,858 8,408 9,081 9,807
Expenses
Fixed production expenses
excluding depreciation Exhibit 1 575 575 587 598 610
Variable production
expenses Exhibit 1 2,035 3,404 4,291 4,669 5,078
Depreciation Exhibit 1 152 152 152 152 164
Total production expenses Summation 0 2,762 4,131 5,030 5,419 5,852
Upfront R&D 625
Initial expenditure
expnsed (p.5, para
Upfront marketing 1, line 1) 625
SGAE Exhibit 1 1,155 1,735 2,102 2,270 2,452
Total operating expenses Summation 1,250 3,917 5,866 7,132 7,689 8,304
EBIT Difference (1,250) 583 992 1,276 1,392 1,503
PAT=EBIT(1-t) Derived (750) 350 595 766 835 902
Capex Exhibit 1 1,470 952 152 152 334 361
Assumptions about working
capital
Minimum cash balance as %
sales Exhibit 1 3.0% 3.0% 3.0% 3.0% 3.0%
Days sales outstanding X Exhibit 1 59.2 59.2 59.2 59.2 59.2
Inventory turnover X Exhibit 1 7.7 8.3 12.7 12.7 12.7
Days payables outstanding Exhibit 1 30.8 30.9 31.0 31.0 31.0
Current assets
Cash 135 206 252 272 294
Accounts receivables days 723 1,101 1,350 1,458 1,575
Inventory 359 498 396 427 461
Total current assets 1,216 1,805 1,998 2,157 2,330
Accounts payables 331 497 606 653 705
Net working capital 886 1,308 1,393 1,504 1,624
Increase in NWC - 886 422 85 112 120
FCF (2,220) (1,336) 173 681 541 584
Terminal value
Total FCF (2,220) (1,336) 173 681 541 584
Cumulative total FCF (2,220) (3,556) (3,383) (2,702) (2,161) (1,576)
PVF 1.000 0.923 0.851 0.785 0.724 0.668
PV (2,220) (1,232) 147 535 392 391
NPV 7,254
IRR 24.87% Initial Cost 3,556
PI 3.27 CFC 4,825
Payback period 8.60 7.5 Difference 1,269
Explicit forecast period cash
flows (2,220) (1,336) 173 681 541 584
PV of explicir forecasting
period (2,220) (1,232) 147 535 392 391
Terminal value
PV of terminal value
Total PV
2016 2017 2018 2019 2020
8.00% 8.00% 8.00% 8.00% 8.00%
10,592 11,439 12,354 13,342 14,410
622 635 648 660 674
5,521 6,000 6,519 7,079 7,685
178 192 207 224 242
6,321 6,827 7,374 7,963 8,601
2,648 2,860 3,089 3,336 3,603
8,969 9,687 10,463 11,299 12,204
1,623 1,752 1,891 2,043 2,206
974 1,051 1,135 1,226 1,323
389 421 454 491 530
1470 800
3.0% 3.0% 3.0% 3.0% 3.0%
59.2 59.2 59.2 59.2 59.2
12.7 12.7 12.7 12.7 12.7
31.0 31.0 31.0 31.0 31.0
318 343 371 400 432
1,701 1,837 1,984 2,142 2,314
498 538 581 627 677
2,516 2,717 2,935 3,170 3,423
762 823 889 960 1,037
1,754 1,895 2,046 2,210 2,387
130 140 152 164 177
633 682 736 795 859
16,377
633 682 736 795 17,236
(944) (262) 474 1,269 18,505
0.616 0.569 0.525 0.484 0.446
390 388 386 385 7,694
Total
633 682 736 795 859
390 388 386 385 383 (56)
16,377
7,311 7,311
7,254
DYOD
High risk
Tax rate 0.4 R&D and Marekting Expenditures to be excluded
Discount rate 9.00%
Growth rate after 10 years 3.0%
Exhibit 2
Year 2010 2011 2012 2013 2014 2015
Revenue growth rate % 139.30% 40.80% 6.00%
Revenue - - 6,000 14,358 20,216 21,429
Expenses
Fixed production expenses
excluding depreciation - - 1,650 1,683 1,717 1,751
Additional development
expense - 435 - - - -
Variable production
expenses - - 2,250 7,651 11,427 12,182
Depreciation - - 310 310 310 436
Total production expenses - 435 4,210 9,644 13,454 14,369
Upfront R&D 841
Upfront marketing 360
SGAE - - 1,240 2,922 4,044 4,287
Total operating expenses 1,201 435 5,450 12,566 17,498 18,656
EBIT (1,201) (435) 550 1,792 2,718 2,773
PAT (721) (261) 330 1,075 1,631 1,664
Capex 4,610 - 310 310 2,192 826
Assumptions about
working capital
Minimum cash balance as
% sales 3.0% 3.0% 3.0% 3.0%
Days sales outstanding 59.2 59.2 59.2 59.2
Inventory turnover 12.2 12.3 12.6 12.7
Days payables outstanding 33.7 33.8 33.9 33.9
Current assets
Cash - 180 431 606 643
Accounts receivables - 973 2,329 3,279 3,476
Inventory 345 784 1,068 1,131
Total current assets - 1,498 3,544 4,953 5,250
Accounts payables - 503 1,164 1,625 1,733
Net working capital - 1,000 995 2,380 3,328 3,517
Increase in NWC - 1,000 (5) 1,385 948 189
FCF (5,331) (1,261) 335 (310) (1,199) 1,085
Terminal value
Total FCF (5,331) (1,261) 335 (310) (1,199) 1,085
Cumulative total FCF (5,331) (6,592) (6,257) (6,566) (7,766) (6,681)
PVF 1.000 0.917 0.842 0.772 0.708 0.650
PV (5,331) (1,157) 282 (239) (850) 705
NPV 7,063
IRR 17.90% Initial Cost 8,101
PI 1.32 CFC 32,550
Payback period 9.99 Difference 24,450
Explicit forecast period
cash flows (5,331) (1,261) 335 (310) (1,199) 1,085
PV of explicir forecasting
period (5,331) (1,157) 282 (239) (850) 705
Terminal value
PV of terminal value
Total PV
2016 2017 2018 2019 2020
6.00% 6.00% 6.00% 6.00% 6.00%
22,715 24,078 25,522 27,054 28,677
1,786 1,822 1,858 1,895 1,933
- - - - -
12,983 13,833 14,736 15,694 16,712
462 490 520 551 584
15,231 16,145 17,114 18,140 19,229
4,544 4,817 5,106 5,412 5,737
19,775 20,962 22,220 23,552 24,966 4610
1201
2,940 3,116 3,302 3,502 3,711
1,764 1,869 1,981 2,101 2,227
875 928 983 1,043 1,105
3.0% 3.0% 3.0% 3.0% 3.0%
59.2 59.2 59.2 59.2 59.2
12.7 12.7 12.7 12.7 12.7
33.9 33.9 33.9 33.9 33.9
681 722 766 812 860
3,684 3,905 4,140 4,388 4,651
1,199 1,271 1,348 1,428 1,514
5,565 5,899 6,253 6,628 7,026
1,837 1,947 2,064 2,187 2,319
3,728 3,952 4,189 4,440 4,707
211 224 237 251 266
1,140 1,208 1,281 1,358 1,439
24,705
1,140 1,208 1,281 1,358 26,144
(5,541) (4,333) (3,052) (1,695) 24,450
0.596 0.547 0.502 0.460 0.422
680 661 643 625 11,044
Total
1,140 1,208 1,281 1,358 1,439
680 661 643 625 608 (3,373)
24,705
10,436 10,436
7,063
MMDC
Moderate risk
Tax rate 40% R&D and Marekting Expenditures to be excluded
Discount rate 8.40%
Growth rate after 10 years 3.0%
Exhibit 1
Year 2010 2011 2012 2013 2014 2015
Revenue growth rate Exhibit 1 52.40% 22.60% 8.00% 8.00%
Revenue Exhibit 1 4,500 6,858 8,408 9,081 9,807
Expenses
Fixed production expenses
excluding depreciation Exhibit 1 575 575 587 598 610
Variable production
expenses Exhibit 1 2,035 3,404 4,291 4,669 5,078
Depreciation Exhibit 1 152 152 152 152 164
Total production expenses Summation 0 2,762 4,131 5,030 5,419 5,852
Upfront R&D 625
Initial expenditure
expnsed (p.5, para
Upfront marketing 1, line 1) 625
SGAE Exhibit 1 1,155 1,735 2,102 2,270 2,452
Total operating expenses Summation 1,250 3,917 5,866 7,132 7,689 8,304
EBIT Difference (1,250) 583 992 1,276 1,392 1,503
PAT=EBIT(1-t) Derived (750) 350 595 766 835 902
Capex Exhibit 1 1,470 952 152 152 334 361
Assumptions about working
capital
Minimum cash balance as %
sales Exhibit 1 3.0% 3.0% 3.0% 3.0% 3.0%
Days sales outstanding X Exhibit 1 59.2 59.2 59.2 59.2 59.2
Inventory turnover X Exhibit 1 7.7 8.3 12.7 12.7 12.7
Days payables outstanding Exhibit 1 30.8 30.9 31.0 31.0 31.0
Current assets
Cash 135 206 252 272 294
Accounts receivables days 730 1,112 1,364 1,473 1,591
Inventory 359 498 396 427 461
Total current assets 1,224 1,816 2,012 2,172 2,346
Accounts payables 331 497 606 653 705
Net working capital 893 1,319 1,406 1,519 1,640
Increase in NWC - 893 426 87 113 121
FCF (2,220) (1,343) 169 678 540 583
Terminal value
Total FCF (2,220) (1,343) 169 678 540 583
Cumulative total FCF (2,220) (3,563) (3,394) (2,716) (2,175) (1,592)
PVF 1.000 0.923 0.851 0.785 0.724 0.668
PV (2,220) (1,239) 144 533 391 390
NPV 7,222
IRR 24.79% Initial Cost 3,563
PI 3.25 CFC 4,811
Payback period 8.57 7.5 Difference 1,248
xx
Explicit forecast period cash
flows (2,220) (1,343) 169 678 540 583
PV of explicir forecasting
period (2,220) (1,239) 144 533 391 390
Terminal value
PV of terminal value
Total PV
2016 2017 2018 2019 2020
8.00% 8.00% 8.00% 8.00% 8.00%
10,592 11,439 12,354 13,342 14,410
622 635 648 660 674
5,521 6,000 6,519 7,079 7,685
178 192 207 224 242
6,321 6,827 7,374 7,963 8,601
2,648 2,860 3,089 3,336 3,603
8,969 9,687 10,463 11,299 12,204
1,623 1,752 1,891 2,043 2,206
974 1,051 1,135 1,226 1,323
389 421 454 491 530
1470 800
3.0% 3.0% 3.0% 3.0% 3.0%
59.2 59.2 59.2 59.2 59.2
12.7 12.7 12.7 12.7 12.7
31.0 31.0 31.0 31.0 31.0
318 343 371 400 432
1,718 1,855 2,004 2,164 2,337
498 538 581 627 677
2,533 2,736 2,955 3,191 3,447
762 823 889 960 1,037
1,772 1,913 2,066 2,232 2,410
131 142 153 165 179
631 680 735 794 857
16,344
631 680 735 794 17,201
(961) (280) 454 1,248 18,449
0.616 0.569 0.525 0.484 0.446
389 387 385 384 7,678
Total
631 680 735 794 857
389 387 385 384 383 (74)
16,344
7,296 7,296
7,222
DYOD
High risk
Tax rate 0.4 R&D and Marekting Expenditures to be excluded
Discount rate 9.00%
Growth rate after 10 years 3.0%
Exhibit 2
Year 2010 2011 2012 2013 2014 2015
Revenue growth rate % 139.30% 40.80% 6.00%
Revenue - - 6,000 14,358 20,216 21,429
Expenses
Fixed production expenses
excluding depreciation - - 1,650 1,683 1,717 1,751
Additional development
expense - 435 - - - -
Variable production
expenses - - 2,250 7,651 11,427 12,182
Depreciation - - 310 310 310 436
Total production expenses - 435 4,210 9,644 13,454 14,369
Upfront R&D 841
Upfront marketing 360
SGAE - - 1,240 2,922 4,044 4,287
Total operating expenses 1,201 435 5,450 12,566 17,498 18,656
EBIT (1,201) (435) 550 1,792 2,718 2,773
PAT (721) (261) 330 1,075 1,631 1,664
Capex 4,610 - 310 310 2,192 826
Assumptions about
working capital
Minimum cash balance as
% sales 3.0% 3.0% 3.0% 3.0%
Days sales outstanding 59.2 59.2 59.2 59.2
Inventory turnover 12.2 12.3 12.6 12.7
Days payables outstanding 33.7 33.8 33.9 33.9
Current assets
Cash - 180 431 606 643
Accounts receivables - 973 2,329 3,279 3,476
Inventory 345 784 1,068 1,131
Total current assets - 1,498 3,544 4,953 5,250
Accounts payables - 503 1,164 1,625 1,733
Net working capital - 1,000 995 2,380 3,328 3,517
Increase in NWC - 1,000 (5) 1,385 948 189
FCF (5,331) (1,261) 335 (310) (1,199) 1,085
Terminal value
Total FCF (5,331) (1,261) 335 (310) (1,199) 1,085
Cumulative total FCF (5,331) (6,592) (6,257) (6,566) (7,766) (6,681)
PVF 1.000 0.917 0.842 0.772 0.708 0.650
PV (5,331) (1,157) 282 (239) (850) 705
NPV 7,063
IRR 17.90% Initial Cost 8,101
PI 1.32 CFC 32,550
Payback period 9.99 Difference 24,450
Explicit forecast period
cash flows (5,331) (1,261) 335 (310) (1,199) 1,085
PV of explicir forecasting
period (5,331) (1,157) 282 (239) (850) 705
Terminal value
PV of terminal value
Total PV
2016 2017 2018 2019 2020
6.00% 6.00% 6.00% 6.00% 6.00%
22,715 24,078 25,522 27,054 28,677
1,786 1,822 1,858 1,895 1,933
- - - - -
12,983 13,833 14,736 15,694 16,712
462 490 520 551 584
15,231 16,145 17,114 18,140 19,229
4,544 4,817 5,106 5,412 5,737
19,775 20,962 22,220 23,552 24,966 4610
1201
2,940 3,116 3,302 3,502 3,711
1,764 1,869 1,981 2,101 2,227
875 928 983 1,043 1,105
3.0% 3.0% 3.0% 3.0% 3.0%
59.2 59.2 59.2 59.2 59.2
12.7 12.7 12.7 12.7 12.7
33.9 33.9 33.9 33.9 33.9
681 722 766 812 860
3,684 3,905 4,140 4,388 4,651
1,199 1,271 1,348 1,428 1,514
5,565 5,899 6,253 6,628 7,026
1,837 1,947 2,064 2,187 2,319 4.4
3,728 3,952 4,189 4,440 4,707
211 224 237 251 266
1,140 1,208 1,281 1,358 1,439
24,705
1,140 1,208 1,281 1,358 26,144
(5,541) (4,333) (3,052) (1,695) 24,450
0.596 0.547 0.502 0.460 0.422
680 661 643 625 11,044
Total
1,140 1,208 1,281 1,358 1,439
680 661 643 625 608 (3,373)
24,705
10,436 10,436
7,063
MMDC
Growth Rate after 10 Years 2% 3% 4% 5% 6%
NPV till 9 years -456 -456 -456 -456 -456
NPV 10 Years 6479 7678 9423 12195 17276
Total NPV 6022 7222 8967 11739 16820
Growth Rate -17% 20% 24% 31% 43%
Sales Growth Rate -10% -5% 0% 5% 10%
NPV -3866 1678 7222 12766 18310
Change -154% -77% 0% 77% 154%
Fixed Cost -10% -5% 0% 5% 10%
NPV 7808 7515 7222 6929 6636
Change 8% 4% 0% -4% -8%
Variable Cost -10% -5% 0% 5% 10%
NPV 13063 10143 7222 4301 1381
Change 81% 40% 0% -40% -81%
8.088235
Net Working Capital -10% -5% 0% 5% 10%
NPV 7556 7389 7222 7055 6888
Change 5% 2% 0% -2% -5%
CAPEX -10% -5% 0% 5% 10%
NPV 8100 7661 7222 6783 6344
Change 12% 6% 0% -6% -12%
Net Working Capital -1% 0%
NPV 7254 7222
Change 0.45%
DYOD
Growth Rate after 10 Years 2% 3% 4% 5% 6%
NPV till 9 years -3981 -3981 -3981 -3981 -3981
NPV 10 Years 9466 11044 13252 16565 22087
Total NPV 5485 7063 9271 12585 18106
Growth Rate -22% 29% 31% 36% 44%
Sales Growth Rate -10% -5% 0% 5% 10%
NPV -11923 -2430 7063 16556 26048
Change -269% -134% 0% 134% 269%
Fixed Cost -10% -5% 0% 5% 10%
NPV 8485 7774 7063 6352 5641
Change 20% 10% 0% -10% -20%
Variable Cost -10% -5% 0% 5% 10%
NPV 17956 12509 7063 1616 -3830
Change 154% 77% 0% -77% -154%
15.42308
Net Working Capital -10% -5% 0% 5% 10%
NPV 7593 7328 7063 6797 6532
Change 8% 4% 0% -4% -8%
CAPEX -10% -5% 0% 5% 10%
NPV 8831 7947 7063 6179 5294
Change 25% 13% 0% -13% -25%
FCF Comparison
Year
MMDC -2220 -1343 169 678 540 583 631 680
DYOD -5331 -1261 335 -310 -1199 1085 1140 1208
-3111 82 166 -988 -1740 501 509 527
First 2 years the FCFs are highe
The next 3 years the FCFs for D
The last 5 years the pattern of
FCF Comparison
2000
1000
0
1 2 3 4 5 6 7 8
-1000
-2000
-3000
-4000
-5000
-6000
735 794 857
1281 1358 1439
547 564 582
First 2 years the FCFs are higher for DYOD
The next 3 years the FCFs for DYOD is highly variable as it is positive only in 3rd year
The last 5 years the pattern of FCFs for both the investments is similar
Comparison
6 7 8 9 10 11 MMDC
DYOD
US Toy and Game Industry
2008 2009
Growth Rate 0.046
Revenues $42,000,000,000 $43,932,000,000
Segments: Share:
Video Games 0.48 $20,160,000,000 $21,087,360,000
Traditional Toys and Games 0.52 $21,840,000,000 $22,844,640,000
1 $42,000,000,000 $43,932,000,000
CD 0 0
Traditional Toys and Games Segment: Share:
Infant/Preschool Toys 0.145 $3,166,800,000 $3,312,472,800
Dolls 0.141 $3,079,440,000 $3,221,094,240
Outdoor & Sports Toys 0.123 $2,686,320,000 $2,809,890,720
Other Toys and Games 0.591 $12,907,440,000 $13,501,182,240
1 $21,840,000,000 $22,844,640,000
CD 0 0
2010 2011 2012 2013
0.046 0.046 0.046 0.046
$45,952,872,000 $48,066,704,112 $50,277,772,501 $52,590,550,036
$22,057,378,560 $23,072,017,974 $24,133,330,801 $25,243,464,017
$23,895,493,440 $24,994,686,138 $26,144,441,701 $27,347,086,019
$45,952,872,000 $48,066,704,112 $50,277,772,501 $52,590,550,036
0 0 0 0
$3,464,846,549 $3,624,229,490 $3,790,944,047 $3,965,327,473
$3,369,264,575 $3,524,250,745 $3,686,366,280 $3,855,939,129
$2,939,145,693 $3,074,346,395 $3,215,766,329 $3,363,691,580
$14,122,236,623 $14,771,859,508 $15,451,365,045 $16,162,127,837
$23,895,493,440 $24,994,686,138 $26,144,441,701 $27,347,086,019
0 0 0 0
US Retail Sales of Dolls
2008 2009 2010 2011
Growth Rate 0.03 0.03 0.03
Sales $3,100,000,000 $3,193,000,000 $3,288,790,000 $3,387,453,700
Categories:
Large
Soft
Mini Dolls
Doll Clothing
Other Accessories
2012 2013
0.03 0.03
$3,489,077,311 $3,593,749,630
2009
Overall: Capital Budget:
No. of Employees 450 EBITDA 0.15
Revenue $245,000,000
Operating Profit $27,000,000 0.11
Retailing Division:
Revenue $190,000,000
Operating Profit $4,800,000 0.03
Licensing Division:
Revenue $24,500,000
Operating Profit $14,500,000 0.59
Production Division:
Revenue $30,500,000
Operating Profit $7,700,000 0.25
0.87
Risk-Wise Discount Rates
Low 0.077
Medium 0.084
High 0.09
Production Division
New Heritage Private Label
Total
Dolls Accessories Dolls Accessories
Revenue $80,000,000 $14,000,000 $26,000,000 $5,000,000 $125,000,000
Operating Income $4,400,000 $500,000 $2,300,000 $300,000 $7,500,000
Doll Price Range Target Age:
Lowest $15 Lowest 3
Highest $30 Highest 12
Products:
MMDC
Property, Plant and Equipment: Intial Expenditues
Useful Life 10 Years Upfront R&D
Depreciation Method MACRS Upfront Marketing
Investment in Working Capital
Property, Plant & Equipment
TOTAL
DYOD
Development Time 12 Months Intial Expenditues
Upfront R&D
Application Development Personnel Costs: Upfront Marketing
Web App Developers 150,000 Investment in Working Capital
Database Manager 160,000 Property, Plant & Equipment
Systems Integration Specialist 125,000 TOTAL
TOTAL 435,000
2010
$625,000
$625,000
$800,000
$1,470,000
$3,520,000
2010 2011
$841,000
$360,000
$1,000,000
$4,610,000
$5,811,000 $1,000,000
DDOD
