IRCO 421B Finance Spring 2013

IRPS, UC San Diego Krislert Samphantharak

Assignment 1 Due April 19, 11.59 pm, by email (“Finance B Turnin” on FirstClass) This assignment serves three main objectives. First, it allows you to review various present value and discounting concepts and how to compute them using relevant functions in Excel. Second, it helps you review some crucial concepts in financial accounting that you studied in the last quarter. Finally, it guides you through the calculation of NPV and other investment criteria we discuss in class. Although the case is from a privately-owned company in the US, it serves as an illustrative example on how we compute NPV, IRR, payback period, and profitability index in practice. This procedure could be applied (with appropriate adjustments) to other investment decision making by other forms of organizations, including households, publicly-traded companies, not-for-profit organizations, or governments, both in the US and elsewhere.

Instruction 1. Read “New Heritage Doll Company: Capital Budgeting” case. The case can be purchased from Harvard Business School Press at https://cb.hbsp.harvard.edu/cbmp/access/19276442 You need to register on the site to create a user name if you do not already have one. After you register, you can get to the coursepack at any time by doing the following: 1. Visit hbsp.harvard.edu and log in. 2. Click “My Coursepacks”, and then click “Finance B”. 2. Excel file consisting of spreadsheets for Exhibits from the case is also available for download. 3. You should try to think about how to get the answer for each question below before diving to the hints provided in the study guide. 4. The study guide is mainly numerical financial analysis and do not contain all of the analysis you need in order to solve the case. In other words, going through