2014,00 2010,00 Revenue Revenue Growth Production Costs Fixed Production Expense (excl depreciation) Variable Production Costs Depreciation Total Production Costs Selling, General & Administrative Total Operating Expenses 0,00 1250,00 1250,00 575,00 2035,00 152,20 2762,20 1155,00 3917,20 575,00 3403,80 152,20 4131,00 1735,00 5866,00 586,50 4290,60 152,20 5029,30 2102,20 7131,50 598,20 4669,00 152,20 5419,40 2270,30 7689,70 610,10 5078,40 164,40 5852,90 2452,00 8304,90 622,30 5521,30 177,50 6321,10 2648,10 8969,20 634,80 6000,30 191,70 6826,80 2860,00 9686,80 647,50 6518,50 207,10 7373,10 3088,80 10461,90 660,40 7078,80 223,60 7962,80 3335,90 11298,70 673,70 7684,70 241,50 8599,90 3602,80 12202,70 Operating Profit Operating Profit Operating …show more content…
11,00 -557,18 2012,00 168,99 2013,00 682,19 2014,00 540,96 2015,00 583,29 2016,00 629,99 2017,00 680,31 2018,00 734,70 2019,00 793,46 2020,00 17202,27 Payback Analysis Cash flows Cumulative cash flow Payback period 5-year Cumulative EBITDA 2010,00 -3020,00 -3020,00 2011,00 -557,18 -3577,18 2012,00 168,99 -3408,20 2013,00 682,19 -2726,01 2014,00 540,96 -2185,05 2015,00 583,29 -1601,76 2016,00 629,99 -971,77 2017,00 680,31 -291,46 2018,00 2019,00 734,70 793,46 443,24 7,40 years 2020,00 17202,27 6522,20 Profitability Index NPV/Initial Investment 2,37 NOTES: Cash (Net Working Capital) = Minimum Cash Balance as % of Sales x Revenue = 0.03 x 4,500 = 135 Account Receivable (Net Working Capital) = Days Sales Outstanding / 365 x Revenue = 59.17 / 365 x 4,500 = 729,5 Inventories (Net Working Capital) = Total Production Costs / Inventory Turnover = 2762,20 / 7.68 = 359.7 Accounts Payable (Net Working Capital) = Days Payable Outstanding / 365 x (Total Production Expenses - Depreciation) = 30.76 / 365 x (3917.20 - 152.20) = 317.3 Corporate tax rate, t = 40% EBIT = Operating Profit -2,8 mean std dev 0,00913 0,16402 -0,459256 2010 Revenue Revenue Growth Production Costs Fixed Production Expense (excl depreciation) Additional development costs (IT personnel) Variable Production Costs Depreciation Total Production Costs Selling, General & Administrative Total Operating Expenses 0 1.201 1.201 2011 0 2012 6.000 NA 2013 14.360 139,3% 2014 20.222 40,8% 2015
Emily Harris is the Vice president of New Heritage Doll Company’s production division. In mid-September of 2010 she was trying to decide on project proposals for the company’s capital budget meeting in October. Of the proposals presented to her, two of them stood out based on their innovation and ability to strengthen the division’s product lines. The first project, Match My Doll Clothing Line Expansion (MMDC), would extend the warm weather products to an all-weather clothing line. The second project, Design your Own Doll (DYOD), would start with a website where customers would choose the doll’s features, color, etc. and then the dolls will be made to order. The
* Taxation and salvage: Tax regulation in every country is different, so the company should consider it when calculating NPV. Also, it should clarify the depreciation expense and interest expense to
OPERATING EXPENSES 57500 Freight 4,302,951.46 1.79% 4,236,263.09 1.84% (66,688.37) -1.55% 60000 Advertising Expense 897,140.01 0.37% 986,854.01 0.43% 89,714.00 10.00% 61000 Auto Expenses 208,974.39 0.09% 214,502.80 0.09% 5,528.41 2.65% 62000 Research & Development 31,212,334.17 12.97% 543,870.44 0.09% (30,668,463.73) -98.26% 64000 Depreciation Expense 133,000.00 0.06% 446,000.00 0.19% 313,000.00 235.34% 64500 Warehouse Salaries
Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s
These number will be used for predicting future financial statements later in this case study.
The revenue is $600,600*1.2= $720,720. The variable cost changes as sales increases and fixed cost stays the same, the gross profit is $175,500. After tax, the net income is $100,557.
For this proposal, Marcy McAdams, the proposer strongly believed it should be started without delay
Its activity during 2008 as measured by the cost of goods sold was $74,000 (COGS). It therefore had an inventory of turnover of 2.55 (74,000/29,000) times. This represents an improvement from 2.04 (43,000/21,000) times in 2005.
New Heritage Doll Company’s production division has two serious proposals that will be presented to the capital budget committee. The first proposal, named Match My Doll Clothing Line extension, will add year round seasonal clothing to Heritage’s product line. This proposal’s NPV was $7,326.11. The IRR was 24.10% and the MIRR was 20.68%. The Profitability Index was 3.08 and the payback period was 7.11 years. The value of the tax shield is $647,000.
However, the number of items was limited. The proposed expansion would create an “All Seasons Collection” of apparel and gear covering all four season of the year. It would expand the number of matching doll and girl clothing items available
By reducing the introduction of new products, cost such as product development, R&D and advertising can be avoided.
1. Compute the Free Cash Flows for the years 2010 to 2020 for both projects
We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as
YEAR 0 2009 1 2010 2 2011 3 2012 4 2013 5 2014 6 2015 7 2016 8 2017 9 2018 10 Initial Investment Gross Revenue 2 COGS 3 Add'l revenue Less: COGS Loan down payment 4 Loan repayment Depreciation Additional workers Land square required Moving cost 5 Operating Expenses Total Expenses Net Income Before Tax Income Tax Net Income After Tax After Tax Cash Flow ATCF Cummulative ATCF NPV through Year N
| Own brand | E-commerce | Bargain market | Price | BBQ: $600 | BBQ: $620 | BBQ: $500 | Price | Furniture: $850 | Furniture: $880 | Furniture: $650 | Price | Accessories: $50 | Accessories: $55 | Accessories: $40 | Unit contribution margin | BBQ: $500 | BBQ: $300 | BBQ: $200 | Unit contribution margin | Furniture: $600 | Furniture: $420 | Furniture: $220 | Unit contribution margin | Accessories: $40 | Accessories: $20 | Accessories: $10 | Total revenue | 8988000 | 15732000 | 10350000 | Total gross profit 2012/13 | 7084800 | 164000 | 3625000 | Additional fixed costs | Add lease $1000000 Add labour $500000 Add plant (depreciation): $500000 | Add training: $50000 Add online store development: $100000 Add new plant and equipment (depreciation): $150000 Add labour: $250000 Add reconfiguration of warehouse/office: $50000 | See approved budget (no change in fixed costs) | Total net profit 2012/13 | 200086 | 1679286 | 1259714 |