Sneaker 2013 Assumptions 2012 2013 2014 2015 2016

($ millions)
Sales (millions of pairs) 1.20 1.60 1.40 2.40
Price/Pair $ 115.0 $ 115.0 $ 115.0 $ 115.0
Cannibalization $ 35.0 $ 15.0
Var Costs (% of Rev) 55% 55% 55% 55%
SG&A Expenses $ 7.00 $ 7.00 $ 7.00 $ 7.00
Endorsement $ 2.00 $ 2.00 $ 2.00 $ 3.00
Other advertising and promotion $ 25.0 $ 15.0 $ 10.0 $ 30.0
A/R (% of net revenue) 8% 8% 8% 8%
Inventory (% of Var Costs) 25% 25% 25% 25%
A/P (% of Var Costs) 20% 20% 20% 20%
Factory Expansion $ 150.0
Equipment $ 15.0
Freight and Installation $ 5.0
Inventory $ 15.0
A/P $ 5.0
Tax rate 40%
Factory MV (Year 6)
Equipment MV (Year 6)

MACRS Depreciation %: Factory 2.6% 5.0% 4.7% 4.5%

MACRS Depreciation %: Equipment 20.0% 32.0% 19.0% 12.0%
BV Factory $ 150.0 $ 146.1 $ 138.6 $ 131.6 $ 124.8
BV Equipment $ 20.0 $ 16.0 $ 9.6 $ 5.8 $ 3.4

Account receiveable $ 8.2 $ 13.5 $ 12.9 $ 22.1

Inventory $ 15.0 $ 14.2 $ 23.2 $ 22.1 $ 38.0
A/P $ 5.0 $ 11.3 $ 18.6 $ 17.7 $ 30.4
NWC (CA-CL) $ 10.0 $ 11.1 $ 18.2 $ 17.3 29.722.3
Cash impact from NWC changes $ (10.0) $ (1.1) $ (7.1) $ 0.9 $ (12.4)

2012 2013 2014 2015 2016

Sneaker Projected Cash Flow
Statements ($ millions)
Revenues $ 138.0 $ 184.0 $ 161.0 $ 276.0
Cannaibalization $ (35.0) $ (15.0) $ - $ -
Net Revenues (after cannabilazation) $ 103.0 $ 169.0 $ 161.0 $ 276.0
Var Costs $ (56.7) $ (93.0) $ (88.6) $ (151.8)
SG & A Xpenses $ (7.0) $ (7.0) $ (7.0) $ (7.0)
Endorsement $ (2.0) $ (2.0) $ (2.0) $ (3.0)
Other advertising and promotion $ (25.0) $ (15.0) $ (10.0) $ (30.0)
Factory Depreciation (39 years MACRS) $ (3.9) $ (7.5) $ (7.1) $ (6.8)
Equipment Depreciation (5 years MACRS) $ (4.0) $ (6.4) $ (3.8) $ (2.4)
EBIT $ 4.4 $ 38.2 $ 42.6 $ 75.1
Taxes $ (1.8) $ (15.3) $ (17.0) $ (30.0)
EBIAT $ 2.7 $ 22.9 $ 25.6 $ 45.0
Plus Depreciation of Factory $ 3.9 $ 7.5 $ 7.1 $ 6.8
Plus Depreciation of Equipment $ 4.0 $ 6.4 $ 3.8 $ 2.4
Change in NWC $ (10.0) $ (1.1) $ (7.1) $ 0.9 $ (12.4)
New Factory $ (150.0)
Equipment , Freight and Installation $ (20.0)
Project Net Cash Flows $ (180.0) $ 9.5 $ 29.7 $ 37.3 $ 41.8
Cumulative Net Cash Flows $ (180.0) $ (170.5) $ (140.8) $ (103.5) $ (61.7)

Project Analysis:
Assumed Cost of Capital 0.11
Payback 5.10 years
Net Present Value $ 13.36
IRR 12.82%
 2017 2018 Source

1.80 0.09 Case p.2, #2

$ 115.0 $ 115.0 Case p.2, #3
Case p.2, #4
55% 55% Case p.3, #8
$ 7.00 $ 7.00 Case p.3, #9
$ 2.00 $ 2.00 Case p.3, #10
$ 25.0 $ 15.0 Case p.3, #11
8% 0% Case p.3, #7
25% 0% Case p.3, #7
20% 0% Case p.3, #7
Case p.2, #5
Case p.3, #6
Case p.3, #6
Case p.3, #7
Case p.3, #7
Case p.3, #7
$ 102.0 Case p.2,3, #5
3.0 Case p.3, #6

4.3% 4.0% Case p.2,3, #5

11.0% 6.0% Case p.3, #6
$ 118.4 $ 112.4 Original factory cost-cumulative depreciation
$ 1.2 $ - Original equipment ship inst cost- depreciation

$ 16.6 $ - 8% of Net Revenue

$ 28.5 $ - 25% of Var Costs
$ 22.8 $ - 20% of Var Costs
$ - A/R + Inv-A/P
$ 7.4 $ 22.3

2017 2018 Calculation

$ 207.0 $ 103.5 Volume sale x Price/Pair

$ - $ - Case p.2, #4
$ 207.0 $ 103.5 Subtotal
$ (113.9) $ (56.9) Var Cost % x Net Revenue
$ (7.0) $ (7.0) Case p.3, #9
$ (2.0) $ (2.0) Case p.3, #10
$ (25.0) $ (15.0) Case p.3, #11
$ (6.5) $ (6.0) Factory Costs x Depreciation %
$ (2.2) $ (1.2) Equipment, Ship, Ins x Depreciation %
$ 50.5 $ 15.4 Subtotal
$ (20.0) $ (6.2)
$ 3.0 $ 9.2
$ 6.5 $ 6.0 44
$ 2.2 $ 1.2 45
$ 7.4 $ 22.3 Annual Change
$ 106.1
$ 1.8
$ 46.4 $ 146.6 Total
$ (15.4) $ 131.3
Persistence Assumptions Year 0 Year 1 Year 2 Year 3
($ millions)
Hiking/Walking market $ 350.0 $ 402.5 $ 462.9
Growth of market 15% 15%
Market share 15% 18% 20%
Var Costs (% of Sales) 38% 38% 38%
SG&A Expenses (% of sales) 12% 10% 8%
Other advertising and promotion $ 3.0 $ 2.0 $ 2.0
Tax rate 40%
Purchase of technology $ 50.0
Equipment costs $ 8.0
Inventory & A/R $ 25.0
A/P $ 10.0

Year 0 Year 1 Year 2 Year 3

Persistence Projected Cash Flow
Statements ($ millions)
Revenues $ 52.0 $ 72.5 $ 92.6
Var Costs $ (20.0) $ (27.5) $ (35.2)
G & A Expenses $ (6.3) $ (7.2) $ (7.4)
Advertising and Promotion $ (3.0) $ (2.0) $ (2.0)
Equipment Depreciation (5 years MACRS) $ (1.6) $ (2.6) $ (1.5)
Technology Purchase $ (50.0) $ - $ - $ -
EBIT $ (50.0) $ 21.7 $ 33.1 $ 46.5
Taxes $ 20.0 $ (8.7) $ (13.2) $ (18.6)
EBIAT $ (30.0) $ 13.0 $ 19.9 $ 27.9
Plus Depreciation of Equipment $ 1.6 $ 2.6 $ 1.5
Change in NWC $ (15.0) $ - $ - $ 15.0
Change in Fixed Assets $ (8.0)
Project Net Cash Flows $ (53.0) $ 14.6 $ 22.4 $ 46.7
Cumulative Net Cash Flows $ (53.0) $ (38.4) $ (16.0) $ 30.7

Project Analysis:
Assumed Cost of Capital 0.14
Payback 2.34 years
Net Present Value $ 8.59
IRR 21.80%
 Source

Case p.4, #3
Case p.4, #3
Case p.4, #3
Case p.4, #7
Case p.4, #9
Case p.4, #10
Case p.4, #11
Case p.4, #12
Case p.4, #5
Case p.4, #6
Case p.4, #6

Calculation

Market share x market size

Revenue x Var Cost %
Revenue x % Line 7
Line 8
10 million x Depreciation %
Pre tax cost
Subtotal
Tax impact
Subtotal

Machinery sold for book value

Total
 2012 2013 2014 2015 2016 2017 2018

Sneaker 2013 Cash flows $ (180.0) $ 9.5 $ 29.7 $ 37.3 $ 41.8 $ 46.4 $ 146.6
Persistence Cash Flows $ (53.0) $ 14.6 $ 22.4 $ 46.7
Persistence Cash Flows 2 $ (53.0) $ 14.6 $ 22.4 $ 46.7
Persistence Cash Flows Total $ (53.0) $ 14.6 $ 22.4 $ (6.3) $ 14.6 $ 22.4 $ 46.7

Persistence Replacement Chain NPV $ 14.39

Persistence Equivalent Annual Annuity $ 3.70
Sneaker 2013 Equivalent Annual Annuinity $ 3.16
Discount rate

11%
14%