Sneaker 2013

(All in millions of dollars)

Life Span 6.00 years

MRP at retail 190.00 /pair
Rate for company (60%) 115.00 /pair

Initial Cashflow
Year 2012 2013
Inventory $ 15.00
Payable increase $ 5.00
Net Working Capital $ 10.00
Inventory $ 14.16
A/R $ 8.24
A/P $ (11.33)
Net Working Capital $ 10.00 $ 11.07
Net cash flow $ (1.07)
Recapture of WC

Year 2012 2013

Pairs sold 1.20
Rate for company $ 115.00
Total revenue $ 138.00
Less: Cannibalization cost $ (35.00)
Net Incremental Revenue $ 103.00
Less: Variable cost (55% of revenue) $ (56.65)

Gross Profit $ 46.35

Depreciation calculation

Factory face value $ 150.00

Depreciation rate 2.60%
Depreciation of the factory $ 3.90
Book value $ 146.10
Factory resale (salvage value)
Loss on sale of factory
Tax saving on loss of sale of factory (40%)
Equipment (Purchase price + Installation cost) $ 20.00
Depreciation rate 20%
Depreciation on equipment 4.00
Book Value $ 16.00
Equipment resale value
Gain on equipment sale
Less: Tax on gain of equipment sale
Total depreciation $ 7.90
SGA expenses $ 7.00
 Endorsement fees $ 2.00
Advertising and promotion costs $ 25.00

Earnings before interest and tax (EBIT) $ 4.45

Tax (40%) $ 1.78

Incremental earnings (EBIAT) $ 2.67

Add back: Total Depreciation $ 7.90

Purchase of factory $ (150.00)
Purchase of equipment $ (20.00)
Changes in WC $ (10.00) $ (1.07)
Terminal cashflow from sale of PPE
Incremental free cashflow $ (180.00) $ 9.50

Capital Budget Decision

1 NPV from year 2012 to 2018 $ 13.36

Explanation:
Greater than 0
Project is accepted
If sneaker is introduced the company will be
wealthier by 13.36 million

2 IRR method 13%

Discount rate 11%

3 Year 0 1
Payback Period $ (180.00) $ (170.50)

4 PI Method 1.074

Summary Table Value Status

NPV from year 2012 to 2018 $ 13.36 Accept
IRR method 13%>11% Accept
Payback period 5.1 years Accept
PI method $ 1.07 Accept
3
ars)

CAGR 1.8%
Effective Tax rate 40%
Discount rate 11%

Operating Cashflow
2014 2015 2016 2017 2018

$ 23.24 $ 22.14 $ 37.95 $ 28.46 $ 14.23

$ 13.52 $ 12.88 $ 22.08 $ 16.56 $ 8.28
$ (18.59) $ (17.71) $ (30.36) $ (22.77) $ (11.39)
$ 18.17 $ 17.31 $ 29.67 $ 22.25 $ 11.13
$ (7.09) $ 0.86 $ (12.36) $ 7.42 $ 11.13
$ 11.13

2014 2015 2016 2017 2018

1.60 1.40 2.40 1.80 0.90
$ 115.00 $ 115.00 $ 115.00 $ 115.00 $ 115.00
$ 184.00 $ 161.00 $ 276.00 $ 207.00 $ 103.50
$ (15.00)
$ 169.00 $ 161.00 $ 276.00 $ 207.00 $ 103.50
$ (92.95) $ (88.55) $ (151.80) $ (113.85) $ (56.93)

$ 76.05 $ 72.45 $ 124.20 $ 93.15 $ 46.57

5.00% 4.70% 4.50% 4.30% 4.00%

$ 7.50 $ 7.05 $ 6.75 $ 6.45 $ 6.00
$ 138.60 $ 131.55 $ 124.80 $ 118.35 $ 112.35
$ 102.00
$ 10.35
$ 4.14

32% 19% 12% 11% 6%

6.40 3.80 2.40 2.20 1.20
$ 9.60 $ 5.80 $ 3.40 $ 1.20 $ -
$ 3.00
$ 3.00
$ 1.20
$ 13.90 $ 10.85 $ 9.15 $ 8.65 $ 7.20
$ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
 $ 2.00 $ 2.00 $ 3.00 $ 2.00 $ 2.00
$ 15.00 $ 10.00 $ 30.00 $ 25.00 $ 15.00

$ 38.15 $ 42.60 $ 75.05 $ 50.50 $ 15.37

$ 15.26 $ 17.04 $ 30.02 $ 20.20 $ 6.15

$ 22.89 $ 25.56 $ 45.03 $ 30.30 $ 9.22

$ 13.90 $ 10.85 $ 9.15 $ 8.65 $ 7.20

$ (7.09) $ 0.86 $ (12.36) $ 7.42 $ 22.25

$ 107.94
$ 29.70 $ 37.27 $ 41.82 $ 46.37 $ 146.62

dget Decisions

2 3 4 5 6
$ (140.81) $ (103.54) $ (61.72) $ (15.35) $ 131.26

5.1 years (approx)

Terminal Cashflow

Net cash flow from WC

22.25

Net Cashflow=
102+4.14= 106.14
$ 106.14

Net Cashflow=
$ 1.80
$ 130.19
 Persistence Projec
(All in millions of d

Life span 3 years

Wholesale price $90
Market Growth rate 15%

Initial Cashflow
Year 2012
Revenue
Less:Expenses
Variable costs

General & Administrative

Advertising & Promotion
Technology purchase $ (50.00)

Earnings before Depreciation, interest & tax $ (50.00)

Depreciation
Earnings before interest & tax $ (50.00)
Tax $ 20.00
Earnings after tax $ (30.00)
Add:Depreciation
Operating cash flow $ (30.00)
Change in WC $ (15.00)
Purchase of Equipment $ (8.00)
Cashflow from sale of Equipment
Recapture of WC
Net cash flow $ (53.00)

Capital Budget Decision

Discount rate 14%
NPV $ 8.59
PI 1.162
IRR 21.75%

0
Payback Period $ (53.00)

Summary Table Value

NPV from year 2012 to 2015 $ 8.59
IRR method 21.75%>14%
Payback period 2.34 years
PI method 1.162
ersistence Project Details
(All in millions of dollars)

Tax Rate 40%

Equipment cost $8

Opearting Cashflow Terminal Cashflow

2013 2014 2015
$ 52.50 $ 72.45 $ 92.58

$ 19.95 $ 27.53 $ 35.18

$ 6.30 $ 7.25 $ 7.41

$ 3.00 $ 2.00 $ 2.00

$ 23.25 $ 35.67 $ 47.99

$ (1.60) $ (2.56) $ (1.52)
$ 21.65 $ 33.11 $ 46.47
$ (8.66) $ (13.25) $ (18.59) No gain/loss
$ 12.99 $ 19.87 $ 27.88
$ 1.60 $ 2.56 $ 1.52
$ 14.59 $ 22.43 $ 29.40

$2.32 $2.32
$15.00 $15.00
$ 14.59 $ 22.43 $ 46.72 $17.32

dget Decision
If persistence is introduced the company will be wealthier by 8.59 million. Also greater than 0, so proj

1 2 3
$ 14.59 $ 22.43 $ 46.72
-$38.41 -$15.98 $30.74
=2.34 years (approx)

Status
Accept
Accept
Accept
Accept
 Year 2013 2014 2015
Market Segment $350 $402.50 $462.88
Persistence's share projections 15% 18% 20%
Total Revenue $52.50 $72.45 $92.58

Breakdowns:
Year 2013 2014 2015
Variable costs (% of revenue) 38% 38% 38%
General & Administrative Expense
(% of revenue) 12% 10% 8%
Depreciation rate 20% 32% 19%
Book value 6.40 3.84 2.32
Resale price 2.32
Change in Inventory & A/R $25
Payables increase $10
Net Working Capital $15

. Also greater than 0, so project accepted.

 Summary Table Sneaker
NPV Method for 2012 to 2018 (in millio $ 13.36
IRR method 13%>11%
Payback method 5.10 years
PI Method 1.074

Sneaker<Persistence
 Persistence Which is better?
$ 8.59 Sneaker
21.75% > 14% Persistence
2.34 years Persistence
1.1621 Persistence

ence