...New Heritage Doll New Heritage Doll Company: Capital Budgeting MGT 6060 20 September 2011 Overview Two business proposals from the Production division of the New Heritage Doll Company are being considered for submission to the capital budgeting committee. Only one proposal will be submitted. The proposals are: Match My Doll Clothing Line Expansion and Design Your Own Doll. A systematic process will be used to determine which proposal to recommend. Criteria Include: 1. Comparison of the business cases 2. NPV analysis 3. IRR and payback period analysis 4. Analysis of additional information 5. Recommendation Comparison of the Business Cases Most Compelling Business Case Match My Doll Clothing Line Expansion Match My Doll Clothing Line Expansion is the the most compelling opportunity. This initial recommendation is based solely on a qualitative comparison of the cases and the financial exhibits provided by the brand managers. A SWOT (Strength, Weakness, Opportunity, & Threat) analysis was used to aid the decision process. See Tables 1 & 2 for SWOT analysis. Benefits of the Match My Doll Clothing Line Expansion: * Success of the original line of business * Utilization of the businesses existing strengths * Long term ability for the product to stay up to date and drive business Concerns for the Design Your Own Doll: * High risk associated with developing a proprietary software system * Complexity of manufacturing * High break-even sales volume Overview Business...
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...New Heritage Doll Company Capital Budgeting Analysis The New Heritage Doll Company is a company that makes dolls for children between the ages 3 – 12 years. The company has revenues of 245 million USD and an operating profit of 24 million USD. The company has three major divisions – The Retailing division, the Licensing division and the Production division. The head of the production division has to choose between two capital intensive projects that have been presented to her - the “Make My Doll Clothing Extension” (MMDCE henceforth) and the “Design Your Own Doll” (DYOD henceforth). This paper will try and analyze some of the issues that may need to be taken into account by the division head before she chooses a project for final approval. Issue 1: Product Line Growth Rate vs Industry Growth Rate The doll segment in the US is slated to grow at 3% in 2013 and lasting franchise value for branded lines of dolls is considered rare – most doll lines lose their popularity within a few years of launch. Given this reality, the underlying assumption of the two brand managers for the two projects is, in my opinion, quite optimistic. The MMDCE line is expected to grow at 8% while the DYOD line is expected to grow at 6% - which is much higher than the expected rate of growth in the dolls segment. The production head must, in my opinion, do due diligence and consider if the growth rates for these product lines can exceed the average industry growth rate by such a large extent. Issue 2: Possibility...
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...Universidad Adolfo Ibáñez Caso: New Heritage Doll Company María Eliana Errázuriz Raimundo Muñoz Josefina Olivera Antonio Poblete Luis Felipe Santa María 1. Presente y compare los argumentos de negocio para las dos proyecciones que Emily Harris está evaluando. ¿Cuál le parece más atractiva? La empresa tiene dos opciones realizar el proyecto “Match My Doll Clothing” o el proyecto “Design Your Own Doll”. En términos de costos, la primera alternativa tiene costos mucho menores, 3.520 versus 5.811 millones de dólares. Por lo tanto, tiene un riesgo moderado y representa la opción más segura para la compañía. Sin embargo, el segundo proyecto está más alineado a la estrategia y objetivos de la empresa y promete ingresos futuros mucho ...
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...New Heritage Doll Company: Capital Budgeting Match my doll clothing line expansion 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ingresos 4,500 6,860 8,409 9,082 9,808 10,593 11,440 12,355 13,344 14,411 Crecimiento de Ingresos 52.4% 22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Costos de Producción Gastos Fijos de Producción (sin depreciación) 575 575 587 598 610 622 635 648 660 674 Costos Variables de Producción 2,035 3,404 4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685 Depreciación 152 152 152 152 164 178 192 207 224 242 Total de Costos de Producción 0 2,762 4,131 5,029 5,419 5,853 6,321 6,827 7,373 7,963 8,600 Gastos de Ventas, Generales y Administrativos 1,250 1,155 1,735 2,102 2,270 2,452 2,648 2,860 3,089 3,336 3,603 Total de Gastos Operativos 1,250 3,917 5,866 7,132 7,690 8,305 8,969 9,687 10,462 11,299 12,203 Utilidad de Operación -1,250 583 994 1,277 1,392 1,503 1,623 1,753 1,893 2,045 2,209 Supuestos de Capital de Trabajo Saldo minimo de caja como % de Ventas 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Días pendientes de venta 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 Rotación de Inventarios 7.7 8.3 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 Días pendientes de pago (basado en gastos de operación) 30.8 30.9 31.0 31.0 31.0 31.0 31.0 31.0 31.0 31.0 ...
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...New Heritage Doll Company: Capital Budgeting Solution Sheet 1 NPV Analysis for Match My Doll Clothing Line Extension 2010 2011 4 500 NA 2012 6 860 52,44% 2013 8 409 22,58% 2014 9 082 8,00% 2015 9 808 8,00% 2016 10 593 8,00% 2017 11 440 8,00% 2018 12 355 8,00% 2019 13 344 8,00% 2020 14 411 8,00% 0 1 250 1 250 575 2 035 152 2 762 1 155 3 917 575 3 404 152 4 131 1 735 5 866 587 4 291 152 5 029 2 102 7 132 598 4 669 152 5 419 2 270 7 690 610 5 078 164 5 853 2 452 8 305 622 5 521 178 6 321 2 648 8 969 635 6 000 192 6 827 2 860 9 687 648 6 519 207 7 373 3 089 10 462 660 7 079 224 7 963 3 336 11 299 674 7 685 242 8 600 3 603 12 203 -1 250 583 994 1 277 1 392 1 503 1 623 1 753 1 893 2 045 2 209 3,0% 59,2x 7,7x 30,8x 3,0% 59,2x 8,3x 30,9x 3,0% 59,2x 12,7x 31,0x 3,0% 59,2x 12,7x 31,0x 3,0% 59,2x 12,7x 31,0x 3,0% 59,2x 12,7x 31,0x 3,0% 59,2x 12,7x 31,0x 3,0% 59,2x 12,7x 31,0x 3,0% 59,2x 12,7x 31,0x 3,0% 59,2x 12,7x 31,0x 952 152 152 334 361 389 421 454 491 530 2011 135 729 360 317 907 107 20,15% 2012 206 1 112 500 484 1 334 427 19,45% 2013 252 1 363 396 593 1 418 84 16,87% 2014 272 1 472 427 640 1 531 113 16,86% 2015 294 1 590 461 692 1 653 122 16,86% 2016 318 1 717 498 747 ...
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...1. Compute the Free Cash Flows for the years 2010 to 2020 for both projects See excel File attached. Assumptions: * We assumed the required working capital in table 2 and 3 is the amount required in 2010, for further years we computed the WCR based on the ratio’s of minimum cash balance, number of days sales outstanding, inventory turnover and days payable outstanding (deducting the depreciation as instructed) * We assumed the SG&A and fixed production costs were project specific and therefore included them in the FCF analysis 2. Compute the NPV of both projects. Which would you recommend? What if they are not mutually exclusive? NPVMMDC = 7,150 NPVDYOD = 7,298 Based solely on the NPV analysis we would suggest to implement the DYOD project as it has a higher NPV. If both projects weren’t mutually exclusive, we would suggest implementing both as both have a positive NPV. 3. Compute IRR and payback period for both projects. Based on each criterion, which project would you recommend? If this differs from NPV analysis, explain the deviation? For MMDC: IRR = 23,99%* Payback period = 8 years (assuming the cash flows occur at year end, as instructed) For DYOD: IRR = 18,33%* Payback period = 11 years (assuming the cash flows in 2021 is indeed CF2020*1,03) *For the IRR analysis we drafted a NPV sensitivity graph in order to make sure that there are not 2 possible values for IRR. These graphs are to be found in the excel file attached...
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...| | |NIKE Inc. | |Transition to Transnationality: A Strategic and Structural Outlook | | | | | | | | | | | | | | | | ...
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...For exclusive use Universidad Adolfo Ibanez (UAI), 2015 N1-710-444 REV: FEBRUARY 7, 2011 BHARAT N. ANAND PETER OLSON The Rand dom Ho ouse Re esponse to the Kindl e e le By early 2010, the internation news med had begun to character y t nal dia n rize book pub blishing as the next e entert tainment ind dustry to be revolutioniz zed by new digital form mats. Amazon announced that n d Christ tmas 2009 had been the fir day ever th its custom rst hat mers had orde ered more ele ectronic versio of ons books for their Kin s ndle reading d devices than p print books.1 Many other companies w were reported to be d ready ying e-readers for an early 2010 launc Most antic s y ch. cipated was Apple Inc.’s iPad, expect ted to chang the terrain of the e-rea ge n ader segment just as the iPhone had r t revolutionize the smartp ed phone marke 2 Worryin et. ngly, prices fo the e-book versions of n or newly publish titles wer at $9.99 or less, hed re, r dropp ping well bel low half the l price of a new hardco list over; public d domain titles (books for w s which copyr right protectio – 70 years after the de on s eath of the au uthor – had e expired) were being offere by e ed some e-vendors fo $0.00.3 Moreover, the ri or ights to electr ronic versions of books pu s ublished befor the re adven of e-books in the 1990s (when publis nt shers first beg to amend their contrac with authors to gan d cts reflect digital edit tions) were i dispute: literary agen and the Authors Gu in nts uild had prot tested...
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...Your Own Doll' : Project costs in the first year were as budgeted but were not sufficient to get the assembly equipment and related software working properly. Additional outlays are required to complete the project, and the launch is accordingly delayed. Young Authors Book Series 'Best of Girls' books were an immediate success with the targeted demographic. Both revenue and profit levels exceeded expectations. 2012 EDI Supplier Software System The new system performed better than expected with regard to SG&A and working capital savings. Expansion to England Boutique sales were stronger than expected, due in large part to the success of 'Dolls of the World' in Europe. Bookstore Café and Writers' Club Initial revenues from the initiative were somewhat higher than expected, but this was offset by lower gross margins resulting from a somewhat different product mix than anticipated. Toddlers Music CD Series Initial revenues from Toddler CDs were twice as large as anticipated. 2011 Replace Assembly Equipment at Sacramento Facility The new machinery performed as expected. 'Match My Doll' Clothing Line, Expansion of Concept The expanded clothing line benefited from the strong performance of the initial 'Match My Doll' line and has outperformed projections. Acquisition of Electronic Toy Manufacturer The acquired business is profitable but performing below the investment case. A few key distributors declined to renew contracts, and future sales growth is threatened. New Inventory...
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...6273-Section 10 October 23, 2014 New Heritage Doll Company Write-up Introduction New Heritage Doll Company is a firm that has ventured into doll production which has sought to extend its brand in order to broaden its market framework and more importantly capitalize on high levels of customer loyalty. The vice president of the Company, Emily Harris, is to forward her project proposal to the Budgeting Committee for evaluation. The Vice-president’s objective for proposing the project was based on potential to strengthen the Company’s division of production and drive future growth. Emily Harris has to produce a compelling project to avoid the committee from declining the proposal. Basis of Assessment There are two projects between which the company can choose from or drop the proposals in their entirety. The methods of project evaluation would be based on discounting cash flows analysis and thereafter determining the Net Present Value (NPV) of each of the proposed project with Internal Rate of Return (IRR), Profitability Index and Payback Period. If the project has a positive NPV, it would suggests the project is generating more cash than is required to service the debt and provide the appropriate returns; thus, the higher NPV, the better it is for the company. The project proposal with the positive and highest NPV, IRR and profitability index along with the shortest payback period would be acceptable for investment. New Heritage Doll Company managed to produce a capital...
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...4212 SEPTEMBER 15, 2010 TIMOTHY LUEHRMAN HEIDE ABELLI New Heritage Doll Company: Capital Budgeting In mid-September of 2010, Emily Harris, vice president of New Heritage Doll Company’s production division, was weighing project proposals for the company’s upcoming capital budgeting meetings in October. Two proposals stood out based on their potential to strengthen the division’s innovative product lines and drive future growth. However, due to constraints on financial and managerial resources, Harris knew it was possible that the firm’s capital budgeting committee would decline to approve both projects. She also knew that New Heritage’s licensing and retail divisions would promote compelling projects of their own. Consequently, Harris had to be prepared to recommend one of her projects over the other. The Doll Industry Revenues in the U.S. toy and game industry totaled $42 billion in 2008 and were projected to increase by 4.6% per year to $52.5 billion by 2013. The market was divided into two broad segments: video games (48%) and traditional toys and games (52%). The second segment was further divided into infant/preschool toys (14.5%), dolls (14.1%), outdoor & sports toys (12.3%), and other toys & games (59.1%) including arts and crafts, plush toys, action figures, vehicles, and youth electronics. The U.S. market for toys and games was dominated by large global enterprises that enjoyed economies of scale in design, production, and distribution. Revenues...
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...------------------------------------------------- New Heritage Doll Co. ------------------------------------------------- Capital Budgeting [Author] New Heritage Doll Company: Capital Budgeting In the case of the New Heritage Doll Company, Emily Harris, Vice President of the company’s production division, is in the process of reviewing and analyzing two capital budgeting proposals within her division. Both proposals intend to spur long-term growth and to strengthen the division’s innovative product lines. Based on various financial and logistical constraints, Harris would only be able to choose one of the projects. The first project, proposed by Marcy McAdams, involves expanding the Match My Doll Clothing Line (MMDC). The second project proposed by Elizabeth Holtz, aims to introduce customization to the existing doll line, Design Your Own Doll (DYOD). In order to correctly identify which project is more compelling and valuable, Harris needs to carefully evaluate the projects based on qualitative and quantitative metrics such as the NPV, payback period, IRR and how well each project is aligned with corporate goals and strategies. When comparing the value of two proposals within a division it is important to not only compare the net present value of the two, but to also consider how each project aligns with the company’s high-level strategies, core competencies and manufacturing capabilities. Unlike the DYOD proposal, MMDC has already established itself as a successful...
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...New Heritage Doll Company Financial Assessment Executive Summary New Heritage Doll Company’s production division has two serious proposals that will be presented to the capital budget committee. The first proposal, named Match My Doll Clothing Line extension, will add year round seasonal clothing to Heritage’s product line. This proposal’s NPV was $7,326.11. The IRR was 24.10% and the MIRR was 20.68%. The Profitability Index was 3.08 and the payback period was 7.11 years. The value of the tax shield is $647,000. The second proposal, called Design Your Own Doll, is a new product line related to the heirloom line. It is one that will allow customers to customize the looks of the dolls they purchase through the New Heritage Doll Company website by utilizing a new software program. This proposal has an NPV of $8,200.45. The IRR is 17.64% and the MIRR is 16.13%. It has a Profitability Index of 2.13 and a payback period of 10.11 years. The value of the tax shield for this project is $629,000. The screening of these projects was extensive and based on this analysis we recommend the Match My Doll Clothing line extension. Although the Design Your Own Doll Line has a higher NPV, it is not the key factor as to what we should use when picking one project over the other. It is important to factor in the IRR, MIRR, Payback Period, and the PI as well. Furthermore, we included the Value of the Tax Shield into our valuation of which project to choose. The Match My Doll Clothing...
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...New Heritage Doll Company: Capital Budgeting The New Heritage Doll Company’s Vice-President of Production, Emily Harris, had to decide which of two proposals she should approve for the company’s upcoming capital budgeting meetings. The first project involved expanding an existing “Match My Doll Clothing” line, which had a proven record of success in the past. The second project introduced a new initiative called “Design Your Own Doll”, which used a web-based software enabling users to customize a doll’s features to the customers’ specifications. To help Emily reach her decision, I will calculate the Net Present Value (NPV) of both projects to find out which project is more profitable. In the financial analysis of both projects Emily was given the following assumptions: 1. Operating projections were used to develop cash flow forecasts and then to calculate Net Present Value, Internal Rates of Return, payback period and other investment metrics. The cash flows excluded all financing charges and non-cash items (i.e. depreciation), and were calculated on an after-corporate-tax basis. The New Heritage’s corporate tax rate was 40% 2. Discount rate was set at 8.4% - for medium-risk project 3. NPV calculations included a terminal value computed as the value of a perpetuity growing at constant rate. I computed Free Cash Flows (FCF) to find out the actual amount of cash from operations that the company could use in developing its new projects. I calculated the terminal value...
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...The New Heritage Doll Company’s Vice-President of Production, Emily Harris, had to decide which of two proposals she should approve for the company’s upcoming capital budgeting meetings. The first project involved expanding an existing “Match My Doll Clothing” line, which had a proven record of success in the past. The second project introduced a new initiative called “Design Your Own Doll”, which used a web-based software enabling users to customize a doll’s features to the customers’ specifications. To help Emily reach her decision, I will calculate the Net Present Value (NPV) of both projects to find out which project is more profitable. In the financial analysis of both projects Emily was given the following assumptions: 1. Operating projections were used to develop cash flow forecasts and then to calculate Net Present Value, Internal Rates of Return, payback period and other investment metrics. The cash flows excluded all financing charges and non-cash items (i.e. depreciation), and were calculated on an after-corporate-tax basis. The New Heritage’s corporate tax rate was 40% 2. Discount rate was set at 8.4% - for medium-risk project 3. NPV calculations included a terminal value computed as the value of a perpetuity growing at constant rate. I computed Free Cash Flows (FCF) to find out the actual amount of cash from operations that the company could use in developing its new projects. I calculated the terminal value for 2020 as projected FCF in the first year...
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