New Heritage Doll Company

Summary
Particulars
NPV
IRR
PI
Payback period

PV of explicit forecasting period

PV of terminal value
Total

MMDC
7,222
24.8%
3.25
8.57

DYOD
7,063 MMDC
17.9% MMDC
1.32 MMDC
9.99 DYOD

MMDC

DYOD

(74)

(3,373)

7,296
7,222

10,436
7,063

MMDC
Moderate risk
Tax rate
Discount rate
Growth rate after 10 years
Exhibit 1
Year
Revenue growth rate
Revenue
Expenses

40% R&D and Marekting Expenditures to be e

8.40%
3.0%
2010

2011

2012
52.40%
6,858

Exhibit 1
Exhibit 1

4,500

Exhibit 1

575

575

Variable production expenses Exhibit 1

Depreciation
Exhibit 1

2,035
152

3,404
152

2,762

4,131

1,155

1,735

3,917

5,866

Fixed production expenses

excluding depreciation

Total production expenses

Upfront R&D

Summation

0
625

Upfront marketing
SGAE

Initial expenditure
expnsed (p.5, para
1, line 1)
Exhibit 1

Total operating expenses

Summation

1,250

EBIT
PAT=EBIT(1-t)

Difference
Derived

(1,250)
(750)

583
350

992
595

Capex

Exhibit 1

1,470

952

152

Minimum cash balance as %

sales
Exhibit 1

3.0%

3.0%

Days sales outstanding X

Exhibit 1

59.2

59.2

Inventory turnover X

Exhibit 1

7.7

8.3

Days payables outstanding

Exhibit 1

30.8

30.9

135
723
359
1,216

206
1,101
498
1,805

625

Assumptions about
working capital

Current assets
Cash
Accounts receivables days
Inventory
Total current assets

Accounts payables

331

497

Net working capital

Increase in NWC

886
886

1,308
422

FCF
Terminal value
Total FCF
Cumulative total FCF
PVF
PV
NPV
IRR
PI
Payback period

Explicit forecast period cash

flows
PV of explicir forecasting
period
Terminal value
PV of terminal value
Total PV

(2,220)

(1,336)

173

(2,220)
(2,220)
1.000
(2,220)
7,254
24.87%
3.27
8.60

(1,336)
(3,556)
0.923
(1,232)

(2,220)

(1,336)

173

(2,220)

(1,232)

147

173
(3,383)
0.851
147

Initial Cost
CFC
7.5 Difference

ng Expenditures to be excluded

2013
22.60%
8,408

2014
8.00%
9,081

2015
8.00%
9,807

2016
8.00%
10,592

2017
8.00%
11,439

2018
8.00%
12,354

2019
8.00%
13,342

2020
8.00%
14,410

587

598

610

622

635

648

660

674

4,291
152

4,669
152

5,078
164

5,521
178

6,000
192

6,519
207

7,079
224

7,685
242

5,030

5,419

5,852

6,321

6,827

7,374

7,963

8,601

2,102

2,270

2,452

2,648

2,860

3,089

3,336

3,603

7,132

7,689

8,304

8,969

9,687

10,463

11,299

12,204

1,276
766

1,392
835

1,503
902

1,623
974

1,752
1,051

1,891
1,135

2,043
1,226

2,206
1,323

152

334

361

389

421

454

491

530

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

59.2

59.2

59.2

59.2

59.2

59.2

59.2

59.2

12.7

12.7

12.7

12.7

12.7

12.7

12.7

12.7

31.0

31.0

31.0

31.0

31.0

31.0

31.0

31.0

252
1,350
396
1,998

272
1,458
427
2,157

294
1,575
461
2,330

318
1,701
498
2,516

343
1,837
538
2,717

371
1,984
581
2,935

400
2,142
627
3,170

432
2,314
677
3,423

606

653

705

762

823

889

960

1,037

1,393
85

1,504
112

1,624
120

1,754
130

1,895
140

2,046
152

2,210
164

2,387
177

681

541

584

633

682

736

795

633
(944)
0.616
390

682
(262)
0.569
388

736
474
0.525
386

681
(2,702)
0.785
535

541
(2,161)
0.724
392

584
(1,576)
0.668
391

795
1,269
0.484
385

859
16,377
17,236
18,505
0.446
7,694

3,556
4,825
1,269

681

541

584

633

682

736

795

859

535

392

391

390

388

386

385

383
16,377
7,311

1470

800

Total

(56)
7,311
7,254

DYOD
High risk
Tax rate
Discount rate
Growth rate after 10 years
Exhibit 2
Year
Revenue growth rate %
Revenue
Expenses

0.4 R&D and Marekting Expenditures to be excluded

9.00%
3.0%
2010

2011

###

6,000

Fixed production expenses

excluding depreciation

###

1,650

Additional development
expense

435

Variable production
expenses
Depreciation

###
###

2,250
310

7,651
###

841
360
-

435

4,210

9,644

###

1,240

2,922

1,201

435

5,450

12,566

(1,201)
(721)

(435)
(261)

550
330

1,792
1,075

4,610

310

###

Minimum cash balance as

% sales

3.0%

3.0%

Days sales outstanding

Inventory turnover

59.2
12.2

###
12.3

Days payables outstanding

33.7

33.8

Total production expenses

Upfront R&D
Upfront marketing
SGAE
Total operating expenses
EBIT
PAT
Capex

2012

2013
139.30%
14,358

1,683
###

Assumptions about working

capital

Current assets
Cash

180

431

Accounts receivables

973

2,329

Inventory
Total current assets
Accounts payables
Net working capital
Increase in NWC

1,000
1,000

345
1,498
503
995
(5)

FCF
Terminal value
Total FCF
Cumulative total FCF
PVF
PV
NPV
IRR
PI
Payback period

(5,331)

(1,261)

(5,331)
(5,331)
1.000
(5,331)
7,063
17.90%
1.32
9.99

(1,261)
(6,592)
0.917
(1,157)

Explicit forecast period cash

flows

(5,331)

(1,261)

335

(310)

(5,331)

(1,157)

282

(239)

PV of explicir forecasting
period
Terminal value
PV of terminal value
Total PV

335

784
3,544
1,164
2,380
1,385

335
(6,257)
0.842
282
Initial Cost
CFC
Difference

(310)
(310)
(6,566)
0.772
(239)
8,101
32,550
24,450

ures to be excluded

2014
40.80%
20,216

2015
6.00%
21,429

2016
6.00%
22,715

2017
6.00%
24,078

2018
6.00%
25,522

2019
6.00%
27,054

1,717

1,751

1,786

1,822

1,858

1,895

###

11,427
310

12,182
436

12,983
462

13,833
490

14,736
520

15,694
551

13,454

14,369

15,231

16,145

17,114

18,140

4,044

4,287

4,544

4,817

5,106

5,412

17,498

18,656

19,775

20,962

22,220

23,552

2,718
1,631

2,773
1,664

2,940
1,764

3,116
1,869

3,302
1,981

3,502
2,101

2,192

826

875

928

983

1,043

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

59.2
12.6

###
12.7

59.2
12.7

59.2
12.7

59.2
12.7

59.2
12.7

33.9

###

33.9

33.9

33.9

33.9

606

643

681

722

766

812

3,279

3,476

3,684

3,905

4,140

4,388

1,068
4,953
1,625
3,328
948

1,131
5,250
1,733
3,517
189

1,199
5,565
1,837
3,728
211

1,271
5,899
1,947
3,952
224

1,348
6,253
2,064
4,189
237

1,428
6,628
2,187
4,440
251

(1,199)

1,085

1,140

1,208

1,281

1,358

(1,199)
(7,766)
0.708
(850)

1,085
(6,681)
0.650
705

1,140
(5,541)
0.596
680

1,208
(4,333)
0.547
661

1,281
(3,052)
0.502
643

1,358
(1,695)
0.460
625

(1,199)

1,085

1,140

1,208

1,281

1,358

(850)

705

680

661

643

625

2020
6.00%
28,677

1,933
16,712
584
19,229

5,737
24,966
3,711
2,227
1,105

3.0%
59.2
12.7
33.9

860
4,651

4610
1201

1,514
7,026
2,319
4,707
266
1,439
24,705
26,144
24,450
0.422
11,044

Total
1,439
608
24,705
10,436

(3,373)
10,436
7,063

MMDC
Moderate risk
Tax rate
Discount rate
Growth rate after 10 years
Exhibit 1
Year
Revenue growth rate
Revenue
Expenses

40% R&D and Marekting Expenditures to be e

8.40%
3.0%
2010

2011

2012
52.40%
6,858

Exhibit 1
Exhibit 1

4,500

Exhibit 1

575

575

Variable production expenses Exhibit 1

Depreciation
Exhibit 1

2,035
152

3,404
152

2,762

4,131

1,155

1,735

3,917

5,866

Fixed production expenses

excluding depreciation

Total production expenses

Upfront R&D

Summation

0
625

Upfront marketing
SGAE

Initial expenditure
expnsed (p.5, para
1, line 1)
Exhibit 1

Total operating expenses

Summation

1,250

EBIT
PAT=EBIT(1-t)

Difference
Derived

(1,250)
(750)

583
350

992
595

Capex

Exhibit 1

1,470

952

152

Minimum cash balance as %

sales
Exhibit 1

3.0%

3.0%

Days sales outstanding X

Exhibit 1

59.2

59.2

Inventory turnover X

Exhibit 1

7.7

8.3

Days payables outstanding

Exhibit 1

30.8

30.9

135
730
359
1,224

206
1,112
498
1,816

625

Assumptions about
working capital

Current assets
Cash
Accounts receivables days
Inventory
Total current assets

Accounts payables

331

497

Net working capital

Increase in NWC

893
893

1,319
426

FCF
Terminal value
Total FCF
Cumulative total FCF
PVF
PV
NPV
IRR
PI
Payback period

Explicit forecast period cash

flows
PV of explicir forecasting
period
Terminal value
PV of terminal value
Total PV

(2,220)

(1,343)

169

(2,220)
(2,220)
1.000
(2,220)
7,222
24.79%
3.25
8.57

(1,343)
(3,563)
0.923
(1,239)

(2,220)

(1,343)

169

(2,220)

(1,239)

144

169
(3,394)
0.851
144

Initial Cost
CFC
7.5 Difference

ng Expenditures to be excluded

2013
22.60%
8,408

2014
8.00%
9,081

2015
8.00%
9,807

2016
8.00%
10,592

2017
8.00%
11,439

2018
8.00%
12,354

2019
8.00%
13,342

2020
8.00%
14,410

587

598

610

622

635

648

660

674

4,291
152

4,669
152

5,078
164

5,521
178

6,000
192

6,519
207

7,079
224

7,685
242

5,030

5,419

5,852

6,321

6,827

7,374

7,963

8,601

2,102

2,270

2,452

2,648

2,860

3,089

3,336

3,603

7,132

7,689

8,304

8,969

9,687

10,463

11,299

12,204

1,276
766

1,392
835

1,503
902

1,623
974

1,752
1,051

1,891
1,135

2,043
1,226

2,206
1,323

152

334

361

389

421

454

491

530

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

59.2

59.2

59.2

59.2

59.2

59.2

59.2

59.2

12.7

12.7

12.7

12.7

12.7

12.7

12.7

12.7

31.0

31.0

31.0

31.0

31.0

31.0

31.0

31.0

252
1,364
396
2,012

272
1,473
427
2,172

294
1,591
461
2,346

318
1,718
498
2,533

343
1,855
538
2,736

371
2,004
581
2,955

400
2,164
627
3,191

432
2,337
677
3,447

606

653

705

762

823

889

960

1,037

1,406
87

1,519
113

1,640
121

1,772
131

1,913
142

2,066
153

2,232
165

2,410
179

678

540

583

631

680

735

794

631
(961)
0.616
389

680
(280)
0.569
387

735
454
0.525
385

678
(2,716)
0.785
533

540
(2,175)
0.724
391

583
(1,592)
0.668
390

794
1,248
0.484
384

857
16,344
17,201
18,449
0.446
7,678

3,563
4,811
1,248

678

540

583

631

680

735

794

857

533

391

390

389

387

385

384

383
16,344
7,296

1470

800

Total

(74)
7,296
7,222

DYOD
High risk
Tax rate
Discount rate
Growth rate after 10 years
Exhibit 2
Year
Revenue growth rate %
Revenue
Expenses

0.4 R&D and Marekting Expenditures to be excluded

9.00%
3.0%
2010

2011

###

6,000

Fixed production expenses

excluding depreciation

###

1,650

Additional development
expense

435

Variable production
expenses
Depreciation

###
###

2,250
310

7,651
###

841
360
-

435

4,210

9,644

###

1,240

2,922

1,201

435

5,450

12,566

(1,201)
(721)

(435)
(261)

550
330

1,792
1,075

4,610

310

###

Minimum cash balance as

% sales

3.0%

3.0%

Days sales outstanding

Inventory turnover

59.2
12.2

###
12.3

Days payables outstanding

33.7

33.8

Total production expenses

Upfront R&D
Upfront marketing
SGAE
Total operating expenses
EBIT
PAT
Capex

2012

2013
139.30%
14,358

1,683
###

Assumptions about working

capital

Current assets
Cash

180

431

Accounts receivables

973

2,329

Inventory
Total current assets
Accounts payables
Net working capital
Increase in NWC

1,000
1,000

345
1,498
503
995
(5)

FCF
Terminal value
Total FCF
Cumulative total FCF
PVF
PV
NPV
IRR
PI
Payback period

(5,331)

(1,261)

(5,331)
(5,331)
1.000
(5,331)
7,063
17.90%
1.32
9.99

(1,261)
(6,592)
0.917
(1,157)

Explicit forecast period cash

flows

(5,331)

(1,261)

335

(310)

(5,331)

(1,157)

282

(239)

PV of explicir forecasting
period
Terminal value
PV of terminal value
Total PV

335

784
3,544
1,164
2,380
1,385

335
(6,257)
0.842
282
Initial Cost
CFC
Difference

(310)
(310)
(6,566)
0.772
(239)
8,101
32,550
24,450

ures to be excluded

2014
40.80%
20,216

2015
6.00%
21,429

2016
6.00%
22,715

2017
6.00%
24,078

2018
6.00%
25,522

2019
6.00%
27,054

1,717

1,751

1,786

1,822

1,858

1,895

###

11,427
310

12,182
436

12,983
462

13,833
490

14,736
520

15,694
551

13,454

14,369

15,231

16,145

17,114

18,140

4,044

4,287

4,544

4,817

5,106

5,412

17,498

18,656

19,775

20,962

22,220

23,552

2,718
1,631

2,773
1,664

2,940
1,764

3,116
1,869

3,302
1,981

3,502
2,101

2,192

826

875

928

983

1,043

3.0%

3.0%

3.0%

3.0%

3.0%

3.0%

59.2
12.6

###
12.7

59.2
12.7

59.2
12.7

59.2
12.7

59.2
12.7

33.9

###

33.9

33.9

33.9

33.9

606

643

681

722

766

812

3,279

3,476

3,684

3,905

4,140

4,388

1,068
4,953
1,625
3,328
948

1,131
5,250
1,733
3,517
189

1,199
5,565
1,837
3,728
211

1,271
5,899
1,947
3,952
224

1,348
6,253
2,064
4,189
237

1,428
6,628
2,187
4,440
251

(1,199)

1,085

1,140

1,208

1,281

1,358

(1,199)
(7,766)
0.708
(850)

1,085
(6,681)
0.650
705

1,140
(5,541)
0.596
680

1,208
(4,333)
0.547
661

1,281
(3,052)
0.502
643

1,358
(1,695)
0.460
625

(1,199)

1,085

1,140

1,208

1,281

1,358

(850)

705

680

661

643

625

2020
6.00%
28,677

1,933
16,712
584
19,229

5,737
24,966
3,711
2,227
1,105

3.0%
59.2
12.7
33.9

860
4,651

4610
1201

1,514
7,026
2,319
4,707
266
1,439
24,705
26,144
24,450
0.422
11,044

Total
1,439
608
24,705
10,436

(3,373)
10,436
7,063

MMDC
Growth Rate after 10 Years
NPV till 9 years
NPV 10 Years
Total NPV
Growth Rate

2%
-456
6479
6022
-17%

3%
-456
7678
7222
20%

4%
-456
9423
8967
24%

5%
-456
12195
11739
31%

6%
-456
17276
16820
43%

-10%
-3866
-154%

-5%
1678
-77%

0%
7222
0%

5%
12766
77%

10%
18310
154%

-10%
7808
8%

-5%
7515
4%

0%
7222
0%

5%
6929
-4%

10%
6636
-8%

0%
7222
0%

5%
4301
-40%

10%
1381
-81%

Net Working Capital

NPV
Change

-5%
10143
40%
8.088235
-10%
-5%
7556
7389
5%
2%

0%
7222
0%

5%
7055
-2%

10%
6888
-5%

CAPEX
NPV
Change

-10%
8100
12%

-5%
7661
6%

0%
7222
0%

5%
6783
-6%

10%
6344
-12%

-1%
7254
0.45%

0%
7222

Sales Growth Rate

NPV
Change
Fixed Cost
NPV
Change
Variable Cost
NPV
Change

Net Working Capital

NPV
Change

-10%
13063
81%

DYOD
Growth Rate after 10 Years
NPV till 9 years
NPV 10 Years
Total NPV
Growth Rate

2%
-3981
9466
5485
-22%

3%
-3981
11044
7063
29%

4%
-3981
13252
9271
31%

5%
-3981
16565
12585
36%

-10%
-11923
-269%

-5%
-2430
-134%

0%
7063
0%

5%
16556
134%

-10%
8485
20%

-5%
7774
10%

0%
7063
0%

5%
6352
-10%

-10%
17956
154%

-5%
12509
77%

0%
7063
0%

Net Working Capital

NPV
Change

-10%
7593
8%

-5%
7328
4%

5%
1616
-77%
15.42308
0%
5%
7063
6797
0%
-4%

CAPEX
NPV
Change

-10%
8831
25%

-5%
7947
13%

0%
7063
0%

Sales Growth Rate

NPV
Change
Fixed Cost
NPV
Change
Variable Cost
NPV
Change

5%
6179
-13%

6%
-3981
22087
18106
44%
10%
26048
269%
10%
5641
-20%
10%
-3830
-154%
10%
6532
-8%
10%
5294
-25%

FCF Comparison
Year
MMDC
-2220
DYOD
-5331
-3111

-1343
-1261
82

169
335
166

678
-310
-988

540
-1199
-1740

583
1085
501

FCF Com
2000
1000
0
-1000
-2000
-3000
-4000
-5000
-6000

631
1140
509

680
1208
527

735
1281
547

794
1358
564

857
1439
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

FCF Comparison

10

11

MM

DYO

ve only in 3rd year

11

MMDC
DYOD

US Toy and Game Industry

2008
Growth Rate
Revenues

$42,000,000,000

Segments:
Video Games
Traditional Toys and Games

Traditional Toys and Games Segment:

Infant/Preschool Toys
Dolls
Outdoor & Sports Toys
Other Toys and Games

Share:
0.48
0.52
1
CD

$20,160,000,000
$21,840,000,000
$42,000,000,000
0

Share:
0.145
0.141
0.123
0.591
1
CD

$3,166,800,000
$3,079,440,000
$2,686,320,000
$12,907,440,000
$21,840,000,000
0

2009
0.046
$43,932,000,000

2010
0.046
$45,952,872,000

2011
0.046
$48,066,704,112

2012
0.046
$50,277,772,501

$21,087,360,000
$22,844,640,000
$43,932,000,000
0

$22,057,378,560
$23,895,493,440
$45,952,872,000
0

$23,072,017,974
$24,994,686,138
$48,066,704,112
0

$24,133,330,801
$26,144,441,701
$50,277,772,501
0

$3,312,472,800
$3,221,094,240
$2,809,890,720
$13,501,182,240
$22,844,640,000
0

$3,464,846,549
$3,369,264,575
$2,939,145,693
$14,122,236,623
$23,895,493,440
0

$3,624,229,490
$3,524,250,745
$3,074,346,395
$14,771,859,508
$24,994,686,138
0

$3,790,944,047
$3,686,366,280
$3,215,766,329
$15,451,365,045
$26,144,441,701
0

2013
0.046
$52,590,550,036

$25,243,464,017
$27,347,086,019
$52,590,550,036
0

$3,965,327,473
$3,855,939,129
$3,363,691,580
$16,162,127,837
$27,347,086,019
0

US Retail Sales of Dolls

2008
Growth Rate
Sales
Categories:
Large
Soft
Mini Dolls
Doll Clothing
Other Accessories

$3,100,000,000

2009
0.03
$3,193,000,000

2010
0.03
$3,288,790,000

2011
0.03
$3,387,453,700

2012
0.03
$3,489,077,311

2013
0.03
$3,593,749,630

2009
Overall:
No. of Employees
Revenue
Operating Profit

450
$245,000,000
$27,000,000 0.11

Retailing Division:
Revenue
Operating Profit

$190,000,000
$4,800,000 0.03

Licensing Division:
Revenue
Operating Profit

$24,500,000
$14,500,000 0.59

Production Division:
Revenue
Operating Profit

$30,500,000
$7,700,000 0.25
0.87

Capital Budget:
EBITDA

0.15

Risk-Wise Discount Rates

Low
Medium
High

0.077
0.084
0.09

Production Division

Revenue
Operating Income
Doll Price Range
Lowest
Highest
Products:

New Heritage
Private Label
Dolls
Accessories
Dolls
Accessories
$80,000,000 $14,000,000 $26,000,000 $5,000,000
$4,400,000
$500,000 $2,300,000
$300,000

$15
$30

Target Age:
Lowest
Highest

3
12

Total
$125,000,000
$7,500,000

MMDC
Property, Plant and Equipment:
Useful Life 10 Years
Depreciation Method MACRS

DYOD
Development Time
Application Development Personnel Costs:
Web App Developers
Database Manager
Systems Integration Specialist
TOTAL

12 Months

150,000
160,000
125,000
435,000

Intial Expenditues
Upfront R&D
Upfront Marketing
Investment in Working Capital
Property, Plant & Equipment
TOTAL

2010
$625,000
$625,000
$800,000
$1,470,000
$3,520,000

Intial Expenditues
Upfront R&D
Upfront Marketing
Investment in Working Capital
Property, Plant & Equipment
TOTAL

2010
$841,000
$360,000

2011

$1,000,000
$4,610,000
$5,811,000 $1,000,000