3. COMPASS RECORDS
Discounted Cash Flow Analysis for "License" and "Produce and Own" Alternatives
Using Base-Case Unit Assumptions
ASSUMPTIONS
Sales projections Units Pricing
U.S. sales 5,000 U.S. wholesale unit price $11.45
U.K., Ireland, Europe sales 2,000 Less distribution fee $9.05
Japan, New Zealand, Australia sales 1,000 U.K., Ireland, Europe price (euro) EUR 7.00
Canada sales 500 Euro/US$ exchange rate 1.224
Units sold by artist 1,500 U.K., Ireland, Europe price (US$) $8.57
Total–projected sales (units) 10,000 Japan, NZ, Australia price (US$) $6.50
Inventory loss 0.3 Canada price (US$) $7.00
Weighted average cost of capital 12% Unit price for artist-sold units $6.00
Distribution fee 21%
CASH FLOWS
Own
Years
0 1 2 3
Annual percentage sold 0% 75% 20% 5%
U.S. forecasted units sold 3,750 1,000 250
U.K., Ireland, Europe forecasted units sold 1,500 400 100
Japan, New Zealand, Australia forecasted units sold 750 200 50
Canada forecasted units sold 375 100 25
Units sold by artist 1,125 300 75
Total sales 61,023 16,273 4,068
Per unit
Cost of goods sold $0.90 6750 1800 450
4. Mechanical royalties $0.85 2,709.38 722.50 180.63
Recording-artist royalties $1.45 9,243.75 2,465 616.25
Recoupables not recovered 0 13,675
Promotion & marketing not recoupable -11000 $0 0 0
Loss on inventory $0.00 0 $2,295.00
Upfront fee (advance) 0 0 0
Taxable income -11000 $42,319.50 $11,285.20 $(13,148.70)
Taxes @... 40% 4400 $16,927.80 $4,514.08 $5,259.48
Net operating profit after tax -6600 $25,391.70 $6,771.12 $(7,889.22)
Change in inventory ($8,471) $4,491 $1,235 $450
Change in recoupables (26,000) 9,244 2,465 616
Free cash flow (41,071) $39,126.45 $10,471.37 $9,147.03
NPV Own $8,721.47
IRR 29%
WORKING CAPITAL
Own
Years
0 1 2 3
Assets
Inventory, incl. overage @... 30% $8,471 $3,980 $2,745 $2,295
Recoupables 26,000 16,756 14,291 13,675
$15,970
Recoupables
Production costs $20,000
Marketing & promotion (1/2) 6,000
Advance 0
Total $26,000
5. WACC US Sales
NPV OWN NPV LICENSE NPV OWN
Base Case $8,721.47 $14,155.99 Base Case $8,721.47
8.00% $11,395.66 $16,039.66 3,000.00 Err:504
9.00% $10,701.30 $15,552.62 3,500.00 Err:504
10.00% $10,024.57 $15,076.57 4,000.00 Err:504
11.00% $9,364.83 $14,611.14 4,500.00 Err:504
12.00% $8,721.47 $14,155.99 5,000.00 Err:504
13.00% $8,093.90 $13,710.78 5,500.00 Err:504
14.00% $7,481.56 $13,275.19 6,000.00 Err:504
15.00% $6,883.93 $12,848.91 6,500.00 Err:504
16.00% $6,300.50 $12,431.67 7,000.00 Err:504
6. Marketing and promotion
Print advertising $3,000
Posters and photos 500
E-card mailings 1,000
$7.39 Independent radio promoter 2,500
Retail placement 5,000
Total marketing & promo cost $12,000
CD mail-out units 2,000
Cost per mail-out unit per unit $0.50
Postage and collateral per unit $2.00
Total cost for CD mail-out $5,000
License
Years
0 1 2 3
3750.00 1,000 250
1,500 400 100
750 200 50
375 100 25
1,125 300 75
61022.63 16272.70 4068.18
0.9 6750 1800 450
9. COMPASS RECORDS
Discounted Cash Flow Analysis for "License" and "Produce and Own" Alternatives
Using Base-Case Unit Assumptions
ASSUMPTIONS
Sales projections Units Pricing
U.S. sales 5,000 U.S. wholesale unit price $11.45
U.K., Ireland, Europe sales 2,000 Less distribution fee $9.05
Japan, New Zealand, Australia sales 1,000 U.K., Ireland, Europe price (euro) EUR 7.00
Canada sales 500 Euro/US$ exchange rate 1.224
Units sold by artist 1,500 U.K., Ireland, Europe price (US$) $8.57
Total–projected sales (units) 10,000 Japan, NZ, Australia price (US$) $6.50
Inventory loss 0.3 Canada price (US$) $7.00
Weighted average cost of capital 12% Unit price for artist-sold units $6.00
Distribution fee 21%
CASH FLOWS
Own
Years
0 1 2 3
Annual percentage sold 0% 75% 20% 5%
U.S. forecasted units sold 3,750 1,000 250
U.K., Ireland, Europe forecasted units sold 1,500 400 100
Japan, New Zealand, Australia forecasted units sold 750 200 50
Canada forecasted units sold 375 100 25
Units sold by artist 1,125 300 75
Total sales 61,023 16,273 4,068
Per unit
Cost of goods sold $0.90 6750 1800 450
10. Mechanical royalties $0.85 2,709.38 722.50 180.63
Recording-artist royalties $1.45 9,243.75 2,465 616.25
Recoupables not recovered 0 13,675
Promotion & marketing not recoupable -11000 $0 0 0
Loss on inventory $0.00 0 $2,295.00
Upfront fee (advance) 0 0 0
Taxable income -11000 $42,319.50 $11,285.20 $(13,148.70)
Taxes @... 40% 4400 $16,927.80 $4,514.08 $5,259.48
Net operating profit after tax -6600 $25,391.70 $6,771.12 $(7,889.22)
Change in inventory ($8,471) $4,491 $1,235 $450
Change in recoupables (26,000) 9,244 2,465 616
Free cash flow (41,071) $39,126.45 $10,471.37 $9,147.03
NPV Own $8,721.47
IRR 29%
WORKING CAPITAL
Own
Years
0 1 2 3
Assets
Inventory, incl. overage @... 30% $8,471 $3,980 $2,745 $2,295
Recoupables 26,000 16,756 14,291 13,675
$15,970
Recoupables
Production costs $20,000
Marketing & promotion (1/2) 6,000
Advance 0
Total $26,000
11. WACC US Sales
NPV OWN NPV LICENSE NPV OWN
Base Case $8,721.47 $14,155.99 Base Case $8,721.47
8.00% $11,395.66 $16,039.66 3,000.00 Err:504
9.00% $10,701.30 $15,552.62 3,500.00 Err:504
10.00% $10,024.57 $15,076.57 4,000.00 Err:504
11.00% $9,364.83 $14,611.14 4,500.00 Err:504
12.00% $8,721.47 $14,155.99 5,000.00 Err:504
13.00% $8,093.90 $13,710.78 5,500.00 Err:504
14.00% $7,481.56 $13,275.19 6,000.00 Err:504
15.00% $6,883.93 $12,848.91 6,500.00 Err:504
16.00% $6,300.50 $12,431.67 7,000.00 Err:504
12. Marketing and promotion
Print advertising $3,000
Posters and photos 500
E-card mailings 1,000
$7.39 Independent radio promoter 2,500
Retail placement 5,000
Total marketing & promo cost $12,000
CD mail-out units 2,000
Cost per mail-out unit per unit $0.50
Postage and collateral per unit $2.00
Total cost for CD mail-out $5,000
License
Years
0 1 2 3
3750.00 1,000 250
1,500 400 100
750 200 50
375 100 25
1,125 300 75
61022.63 16272.70 4068.18
0.9 6750 1800 450