New Heritage Doll Company: Capital BudgetingExhibit 1

2010 2011 2012

Revenue 4,500 6,860

Revenue Growth 52.4%

Production Costs

Fixed Production Expense (excl depreciation) 575 575

Variable Production Costs 2,035 3,404

Depreciation 152 152

Total Production Costs 0 2,762 4,131

Selling, General & Administrative 1,250 1,155 1,735

Total Operating Expenses 1,250 3,917 5,866

Operating Profit (1,250) 583 994

Working Capital Assumptions:

Minimum Cash Balance as % of Sales 3.0% 3.0%

Days Sales Outstanding 59.2 59.2

Inventory Turnover (prod. cost/ending inv.) 7.7x 8.3x

Days Payable Outstanding (based on tot. op. exp.) 30.8 30.9

Capital Expenditures 1,470 952 152

MMDC SOLUTION

2010 2011 2012

Net Working CapitalMINIMUM CASH BALANCE 135.00 205.80RECEIVABLES 729.49 1,112.07INVENTORY 339.84 481.69PAYABLES 317.29 483.72

TOTAL NET WORKING CAPITAL 800.00 887.05 1,315.85CHANGE IN NET WORKING CAPITAL -800.00 -87.05 -428.81

FREE CASH FLOW:EBIT -1,250.00 582.80 994.00TAX @ 40% -233.12 -397.60Earning After Tax -1,250.00 349.68 596.40DEPRECIATION 0.00 152.20 152.20CHANGE IN NWC -800.00 -87.05 -428.81CAPITAL EXPENDITURE (10 yrs) -1,470.00 -952.20 -152.20Tax Benefit 500.00

FREE CASH FLOW -3,520.00 -37.37 167.59Terminal Value (Growth Rate Assumed at 2%)

Selected Operating Projections for Match My Doll Clothing Line Expansion

Cash Flow After terminal value -3,520.00 -37.37 167.59

CUMULATIVE FREE CASH FLOW 15,792.60

DISCOUNT RATE 8.40%

NET PRESENT VALUE 5,937.39INTERNAL RATE OF RETURN 22.12%PAYBACK PERIOD (Note 1) 7 years and 4 monthsModdified Internal rate MIRR (Note 2) as Calculated in Note 2 19.66%

Note 1 - Payback PeriodIn 7 years 3,244 In 4.51 months in 8th year 276 Capital Outlay Amount 3,520

YearNote 2 - MIRR 2010 2011 2012Cash Flow After terminal value for IRR -3520 -37.36539 167.5949Cash Flow After terminal value for MIRR -3520 0 0

2013 2014 2015 2016 2017 2018 2019 2020

8,409 9,082 9,808 10,593 11,440 12,355 13,344 14,411

22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

587 598 610 622 635 648 660 674

4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685

152 152 164 178 192 207 224 242

5,029 5,419 5,853 6,321 6,827 7,373 7,963 8,600

2,102 2,270 2,452 2,648 2,860 3,089 3,336 3,603

7,132 7,690 8,305 8,969 9,687 10,462 11,299 12,203

1,277 1,392 1,503 1,623 1,753 1,893 2,045 2,209

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

12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x

31.0 31.0 31.0 31.0 31.0 31.0 31.0 31.0

152 334 361 389 421 454 491 530

MMDC SOLUTION

2013 2014 2015 2016 2017 2018 2019 2020

252.26 272.44 294.24 317.78 343.20 370.66 400.31 432.34

1,363.15 1,472.20 1,589.97 1,717.17 1,854.55 2,002.90 2,163.14 2,336.19384.02 414.74 447.91 483.75 522.45 564.25 609.39 658.14592.95 640.38 691.61 746.93 806.69 871.24 940.93 1,016.21

1,406.48 1,519.01 1,640.52 1,771.77 1,913.50 2,066.57 2,231.91 2,410.46-90.63 -112.52 -121.51 -131.25 -141.74 -153.07 -165.34 -178.55

1,277.30 1,391.80 1,503.10 1,623.46 1,753.27 1,893.30 2,045.00 2,208.50-510.92 -556.72 -601.24 -649.38 -701.31 -757.32 -818.00 -883.40766.38 835.08 901.86 974.08 1,051.96 1,135.98 1,227.00 1,325.10152.20 152.20 164.40 177.50 191.70 207.10 223.60 241.50-90.63 -112.52 -121.51 -131.25 -141.74 -153.07 -165.34 -178.55

-152.20 -333.80 -360.50 -389.30 -420.50 -454.10 -490.50 -529.70

675.75 540.96 584.25 631.03 681.43 735.91 794.76 858.3513,679.94

Line Expansion

675.75 540.96 584.25 631.03 681.43 735.91 794.76 14,538.29

7 years and 4 months

2013 2014 2015 2016 2017 2018 2019 2020675.7494 540.9554 584.2494 631.0259 681.4257 735.9149 794.7576 14538.29 22%

0 0 0 0 0 0 0 21186.74 19.7%

0 -50001 100002 -5003 10004 20005 400

Rs. 5,398.84

New Heritage Doll Company: Capital BudgetingExhibit 2

2010 2011 2012

Revenue 0 6,000

Revenue Growth

Production Costs

Fixed Production Expense (excl depreciation) 0 1,650

Variable Production Costs 0 2,250

Development Costs 435

Depreciation 0 310

Total Production Costs 435 4,210

Selling, General & Administrative 1,201 0 1,240

Total Operating Expenses 1,201 435 5,450

Operating Profit (1,201) (435) 550

Working Capital Assumptions:

Minimum Cash Balance as % of Sales 3.0%

Days Sales Outstanding 59.1

Inventory Turnover (prod. cost/ending inv.) 12.2x

Days Payable Outstanding (based on tot. op. exp.) 33.7

Capital Expenditures 4,610 0 310

DYOD SOLUTION

2010 2011 2012

Net Working CapitalMINIMUM CASH BALANCE 180.00RECEIVABLES 971.51INVENTORY 320.20PAYABLES 474.15

TOTAL NET WORKING CAPITAL 0 1,000 997.56CHANGE IN NET WORKING CAPITAL 0 (1,000) 2.44

FREE CASH FLOW:EBIT -1,201.00 -435.00 550.30TAX @ 40% -220.12Earning After Tax -1,201.00 -435.00 330.18DEPRECIATION 0.00 0.00 309.70CHANGE IN NWC 0.00 -1,000.00 2.44CAPITAL EXPENDITURE -4,610.00 0.00 -309.70Tax Benefit 480.40 174.00

FREE CASH FLOW -5,811.00 -954.60 506.62Terminal Value (Growth Rate Assumed atCash Flow After terminal value -5,811.00 -954.60 506.62CUMULATIVE FREE CASH FLOW 20,808.44

Selected Operating Projections for Design Your Own Doll

DISCOUNT RATE 9.00%NET PRESENT VALUE 5,475.06INTERNAL RATE OF RETURN 16.28%PAYBACK PERIOD (Note 1) 9 years & 1 monthModdified Internal rate MIRR (Note 2) 15.81%

Note 1 - Payback PeriodIn 7 years 4,140 In 4.51 months in 8th year 1,671.13Capital Outlay Amount 5,811

YearNote 2 - MIRR 2010 2011 2012Cash Flow After terminal value for IRR -5811 -954.6 506.6235Cash Flow After terminal value for MIRR -5811 -954.6 0

2013 2014 2015 2016 2017 2018 2019 2020

14,360 20,222 21,435 22,721 24,084 25,529 27,061 28,685

139.3% 40.8% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

1,683 1,717 1,751 1,786 1,822 1,858 1,895 1,933

7,651 11,427 12,182 12,983 13,833 14,736 15,694 16,712

310 310 436 462 490 520 551 584

9,644 13,454 14,369 15,231 16,145 17,113 18,140 19,229

2,922 4,044 4,287 4,544 4,817 5,106 5,412 5,737

12,566 17,498 18,656 19,775 20,962 22,219 23,553 24,966

1,794 2,724 2,779 2,946 3,123 3,310 3,509 3,719

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

12.3x 12.6x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x

33.8 33.9 33.9 33.9 33.9 33.9 33.9 33.9

310 2,192 826 875 928 983 1,043 1,105

DYOD SOLUTION

2013 2014 2015 2016 2017 2018 2019 2020

430.80 606.65 643.04 681.63 722.53 765.88 811.83 860.54

2,327.89 3,278.12 3,474.79 3,683.28 3,904.28 4,138.54 4,386.86 4,650.06760.72 1,040.69 1,095.32 1,161.05 1,230.72 1,304.55 1,382.83 1,465.80

1,134.94 1,598.27 1,694.15 1,795.82 1,903.57 2,017.77 2,138.85 2,267.182,384.47 3,327.18 3,519.00 3,730.14 3,953.95 4,191.20 4,442.67 4,709.23

-1,386.92 -942.71 -191.81 -211.14 -223.81 -237.25 -251.47 -266.56

1,794.30 2,723.70 2,779.20 2,945.80 3,122.60 3,310.10 3,508.56 3,719.00-717.72 -1,089.48 -1,111.68 -1,178.32 -1,249.04 -1,324.04 -1,403.42 -1,487.60

1,076.58 1,634.22 1,667.52 1,767.48 1,873.56 1,986.06 2,105.14 2,231.40309.70 309.70 436.20 462.40 490.10 519.50 550.70 583.80

-1,386.92 -942.71 -191.81 -211.14 -223.81 -237.25 -251.47 -266.56-309.70 -2,191.50 -825.70 -875.30 -927.80 -983.40 -1,042.50 -1,105.00

-310.34 -1,190.29 1,086.21 1,143.44 1,212.05 1,284.91 1,361.87 1,443.6421,035.92

-310.34 -1,190.29 1,086.21 1,143.44 1,212.05 1,284.91 1,361.87 22,479.57

2013 2014 2015 2016 2017 2018 2019 2020 Rate Remarks-310.3352 -1190.293 1086.207 1143.439 1212.048 1284.912 1361.869 22479.57 16% IRR

0 0 0 0 0 0 0 28791.5 15.8% MIRR