# Discussion

Anonymous

### Question Description

Preparation:

1-Research risk management approaches for managers. (You must find the research)

b-Set D: Management Functions and Risk Management

Discussion:

Discuss how a similar “set your price” approach could be used for Heritage Doll with -

A- Match my Doll product line.

B- Design your own Doll product line.

+ In separate file

+ Note:

1- Write more than 1 page and less than 4 pages

2-Avoid plagiarism.

3-The following format guidelines are suggested:

-standard 1" margins
-single-spacing (text)
-double-spacing between paragraphs
-no paragraph indentation (left justified)
-size 12 font, Times New Roman, black text
-italicized or bold font for section headings

4- See attachment which is factsheet of Heritage Doll that I have wrote. Also, I will provide the article of Heritage Doll that you may use it.

Tags: c f
New Heritage Doll Case – Additional Information to compute cash flows – Helpful Hints I. Compute the initial outlay For Exhibit #1, use table 2:   Upfront R&D = \$625 plus Upfront marketing = \$625 => \$1,250 Capital Expenditure => \$1,470 Using the Free Cash flow equation; where operating profit is “revenues – costs – depreciation” Operating profit (1-T) + Depreciation -  net working capital - Capital expenditures _______________ = FCF So for 2010, the initial outlay is: - \$1250 (1-T)+ 0 - \$800 - \$1,470 = (\$3,020) NOTE: it is not uncommon for a project to have negative cash flows in out years (beyond year zero) II. Compute net working capital Recall: net working capital equals current assets minus current liabilities Use the working capital assumptions to compute net working capital for each year. For year 2011:  Cash =>3% of sales or revenue = \$135  Account receivables: o Days sales in receivable = 365 / receivable turnover =>59.2 = 365/receivable turnover o Account receivable = Sales/ receivable turnover => \$4,500/6.17 o So, Account receivable = \$729  Inventory: 1  o Inventory = COGS (use total production cost)/inventory =>7.7 = \$2,762/ inventory o So, Inventory = \$359 Accounts payable (note: this is a liability which will be subtracted): o DPO = 365/payable turnover =>30.8 = 365/payable turnover o Payable turnover = Cost of Sales (use total operating costs minus depreciation)/ accounts payable => 11.85 = (3,917 – 152)/accounts payable o Accounts payable = \$318 Net working capital = \$135 + \$ 729 + \$359 - \$318 = \$905 III. Compute Change in net working capital – NOTE: the FCF equation uses “change in net working capital” o o For 2011,  net working capital => look at difference between years; so, for year 2011, the difference is between Year 2010 and Year 2011; So,  net working capital in 2011 is \$905-\$800 = \$105 IV. Compute Terminal Cash Flows Use the following formula to compute terminal cash flows in 2020: where 2020 is the end of project TV2020 = FCF2020 (1+ g)/ (r – g) If we using the following : g = 3%; computed FCF2020= \$857; and if project risk of medium is used, then r = 8.4%, then: TV2020 = \$857 (1.03)/ (.084- .03) = \$16.35 mil NOTE: both the TV2020 cash flow plus the FCF2020must be included in the NPV, IRR, PI, and payback period computations. Therefore, for year 2020, the total cash flow (FCF, plus TV) would be \$16.35 mil + \$857 or \$17,202. Of course, if you use different growth rates (g) and different required returns ( r), the value will be different. 2

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