FM Assignment 1 (Heritage Doll Co.

) Group 9
Sneha (PGP29342) | Anurag (PGP30302) | Chitra (PGP30307) | Nikhil (PGP30323)
The Heritage doll company is considering two projects:

Match My Doll Clothing(MMDC) : Is an opportunistic but entirely logical, follow-on

investment that builds on a prior success
Design Your Own Doll (DYOD) : Is ased o the o pa ys k owledge of its usto ers a d
their loyalty to the brand
Intuition suggests that the former may offer quicker success, but the latter a more durable
contribution to the franchise

NPV, IRR, Payback Period, PI analysis is carried out to understand the outcomes of the project.
Estimating the net present value
The main ingredients are
1. The initial investment
2. Expected future cash flows
3. A discount rate
4. A terminal value
1) Initial Investment
It has been available as a case fact.
2) Expected cash flows

EBIT(1-T)
Add depreciation
Less change in NWC
Less capital expenditure
= Free cash flow

In order to find the working capital, based on the assumptions provided in the case, each line item of
WC has been calculated from the ratios provided.
3) Discount Rate
Discount Rate for the projects has been provided in the case based on the risks involved (High Risk
@ 9%, Medium Risk @ 8.4%, and Low Risk @ 7.7%).
4) Terminal Value
Terminal Value is modelled as a perpetuity with a constant growth rate g = 3%
TV = FCFt+1/(r g)

Based on the calculated values, NPV, IRR, Payback Period & PI of MMDC is favourable.

FM Assignment 1 (Heritage Doll Co.) Group 9

Sneha (PGP29342) | Anurag (PGP30302) | Chitra (PGP30307) | Nikhil (PGP30323)

NPV Analysis for DYOD (Design you own Doll)

DYOD
Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl. depriciation)
Additional Development Costs (IT Personnel)
Variable production costs
Depriciation
Total Production Costs
Selling, General And Administrative Expense
Total Operating Expense
Operating Profit
Operating Profit/Sales
SG&A/Sales
Working Capital
Minimum Cash Balance as % of Sales
Day Sales Outstanding
Inventory Turnover (Production Cost/ Ending Inventory)
Days Payable Outstanding (Based on total operating expense)
Capital Expenditures
Growth in CAPEX
Net Working Capital Accounts
Cash
Accounts Receivable
Inventory
Accounts Payable
Net Working Capital
Change in Net Working Capital
Free Cash Flows
EBIT (1-t)
+ Depreciation
- Change in NWC
- Capital Expenditure
Free Cash Flow
Terminal Value 3%
Discount factor 9%
Present Value
NPV
NPV without terminal value
IRR analysis
Cash Flows
IRR
Payback Analysis
Cash Flows
Cumulative cash flow
Payback Period
5 year cumulative EBITDA
Profitability Index
NPV/Initial investment

2010

2011
$0

2012
$6,000
NA

2015
$21,435
6%

2016
$22,721
6%

2017
$24,084
6%

2018
$25,529
6%

2019
$27,061
6%

2020
$28,685
6%

1650

1683

0
1201
$1,201
($1,201)

0
435
0
0
435
0
$435
($435)

1717

1751

1786

1822

1858

1895

1933

2250
310
4210
1240
$5,450
$550
0.092
0.207

7651
310
9644
2922
$12,566
$1,794
0.125
0.203

11427
310
13454
4044
$17,498
$2,724
0.135
0.2

12182
436
14369
4287
$18,656
$2,779
0.13
0.2

12983
462
15231
4544
$19,775
$2,946
0.13
0.2

13833
490
16145
4817
$20,962
$3,123
0.13
0.2

14736
520
17113
5106
$22,219
$3,310
0.13
0.2

15694
551
18140
5412
$23,553
$3,508
0.13
0.2

16712
584
19229
5737
$24,966
$3,719
0.13
0.2

NA
NA
NA
NA
$4,610

NA
NA
NA
NA
$0

3%
59.2X
12.2X
33.7X
$310

1000
1000
2011
-261
0
-1000
0
-1261

2012
180
973
346
474
1024
24
2012
330
310
-24
-310
306

3%
59.2X
12.3X
33.8X
$310
0%
2013
431
2328
786
1135
2410
1386
2013
1077
310
-1386
-310
-309

3%
59.2X
12.6X
33.9X
$2,192
608%
2014
607
3278
1065
1598
3352
942
2014
1634
310
-942
-2192
-1190

3%
59.2X
12.7X
33.9X
826%
-62%
2015
643
3475
1130
1694
3553
202
2015
1667
436
-202
-826
1076

3%
59.2X
12.7X
33.9X
$875
6%
2016
682
3683
1197
1796
3766
213
2016
1767
462
-213
-875
1141

3%
59.2X
12.7X
33.9X
$928
6%
2017
723
3904
1269
1904
3992
226
2017
1874
490
-226
-928
1210

3%
59.2X
12.7X
33.9X
$983
6%
2018
766
4139
1345
2018
4232
240
2018
1986
520
-240
-983
1283

3%
59.2X
12.7X
33.9X
$1,043
6%
2019
812
4387
1426
2139
4486
254
2019
2105
551
-254
-1043
1359

1
-5331
$7,058
($3,391)

0.9174
-1157

0.8417
258

0.7722
-239

0.7084
-843

0.6499
700

0.5963
681

0.547
662

0.5019
644

0.4604
626

3%
59.2X
12.7X
33.9X
$1,105
6%
2020
861
4650
1512
2267
4755
269
2020
2231
584
-269
-1105
1441
24737
0.4224
11058

2010

2011
0

-5331
17.90%
2010
-5331
-5331

-1261

306

-309

-1190

1076

1141

1210

1283

1359

26176

2011
-1261
-6592

2012
306
-6286

2013
-309
-6595

2014
-1190
-7784

2015
1076
-6708

2016
1141
-5566

2017
1210
-4357

2018
1283
-3074

2019
1359
-1715

2020
26178
24464
>10 years

2010
-721

-4610
-5331

2013
2014
$14,360 $20,222
139.30% 40.80%

8778
1.32

FM Assignment 1 (Heritage Doll Co.) Group 9

Sneha (PGP29342) | Anurag (PGP30302) | Chitra (PGP30307) | Nikhil (PGP30323)

NPV a alysis for MMDC (Match

MMDC
Revenue
Revenue Growth
Production Costs
Fixed Production Expense (excl depreciation)
Variable Production Costs
Depreciation
Total Production Costs
Selling, General & Administrative
Total Operating Expenses

2011
4,500
NA

2012
6,860
52.4%

2013
8,409
22.6%

2014
9,082
8.0%

2015
9,808
8.0%

2016
10,593
8.0%

2017
11,440
8.0%

2018
12,355
8.0%

2019
13,344
8.0%

2020
14,411
8.0%

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
0.130
0.257

994
0.145
0.253

1,277
0.152
0.250

1,392
0.153
0.250

1,503
0.153
0.250

1,623
0.153
0.250

1,753
0.153
0.250

1,893
0.153
0.250

2,045
0.153
0.250

2,209
0.153
0.250

NA
NA
NA
0.0x

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

Capital Expenditures
growth in capex

1,470

952
-35.2%

152
-84.0%

152
0.0%

334
119.3%

361
8.0%

389
8.0%

421
8.0%

454
8.0%

491
8.0%

530
8.0%

Net Working Capital Accounts

Cash
Accounts Receivable
Inventory
Accounts Payable
Net Working Capital
WC
NPV Analysis MMDC
Free Cash Flows
EBIT (1-t)
+ Depreciation
- Change in NWC
- Capital Expenditure
Free Cash Flow
Terminal Value 3%
Initial Outlays
Net working capital
Net property, machinery
Discount factor 8.4%
Present Value
NPV
NPV without terminal value
IRR analysis
Cash Flows
IRR
Payback Analysis
Cash Flows
Cumulative cash flow
Payback Period
5 year cumulative EBITDA
Profitability Index
NPV/Initial investment

2010

2011
135
729
360
317
907
107

2012
206
1112
500
484
1334
428

2013
252
1363
396
593
1418
84

2014
272
1472
427
640
1531
113

2015
294
1590
461
692
1653
123

2016
318
1717
498
747
1786
133

2017
343
1855
538
807
1929
143

2018
371
2003
581
871
2084
154

2019
400
2163
627
941
2249
165

2020
432
2336
677
1016
2429
180

2011
350
152
-107
-952
-557

2012
596
152
-427
-152
169

2013
766
152
-84
-152
682

2014
835
152
-113
-334
541

2015
902
164
-122
-361
583

2016
974
178
-132
-389
630

2017
1052
192
-143
-421
680

2018
1136
207
-154
-454
735

2019
1227
224
-167
-491
793

2020
1325
242
-180
-530
857
16345

Operating Profit
operating Profit/sales
SGA/Sales
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.)

2010

y Dolls clothing)

0
1,250
1,250

800

2010
-750
0

-750

-800
-1470
1
-3020
$7,150
($146)
2010
-3020
24.00%
2010
-3020
-3020

0.922509 0.851023 0.785077 0.724241 0.668119 0.616346 0.568585 0.524524 0.483879 0.446383
-514
144
535
392
390
388
387
386
384
7679

2011
-557

2012
169

2013
682

2014
541

2015
583

2016
630

2017
680

2018
735

2019
793

2020
17202

2011
-557
-3577

2012
169
-3408

2013
682
-2726

2014
541
-2185

2015
583
-1602

2016
630
-972

2017
680
-292

2018
735
443
7.4

2019
793

2020
17202

$6,522.00
2.37

years