New Heritage Doll Company

In: Other Topics

Submitted By muktasadananda
Words 2279
Pages 10
________________________________________________________________________________________________________________
Harvard Business School Professor Timothy Luehrman and HBS MBA Heide Abelli prepared this reading to accompany the Finance Simulation:
Capital Budgeting (HBP No. 3357). This reading is fictionalized, is not a source of primary data or an illustration of elective or ineffective management and any resemblance to actual persons or entities is coincidental.
Copyright c 2010 Harvard Business School Publishing. To order copies or request permission to reproduce materials, call 1-800-545-7685, write
Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means.electronic, mechanical, photocopying, recording, or otherwise.without the permission of Harvard Business Publishing.
Harvard Business Publishing is an affiliate of Harvard Business School.
ONLINE SIMULATION FOREGROUND READING
Finance: Capital Budgeting
Company and Industry Overview
The New Heritage Doll Company, based in Sacramento, California, was a privately held company with 450 employees and approximately $245 million in fiscal 2009 revenues. This represented approximately 8% of the $3.1 billion U.S. doll industry, which was projected to grow by 2% annually to $3.4 billion in retail sales by 2013. In turn, the doll industry represented a 7.4% share of the total
$42 billion U.S. market for toys and games, which was dominated by global enterprises that enjoyed economies of scale in design, production, and distribution. Revenues were highly seasonal; the largest selling season in the United States coincided with the winter holiday period.
The doll category included large, soft, and mini dolls, as well as doll clothes and…...

Similar Documents

New Heritage Doll Essay

...------------------------------------------------- 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...

Words: 1834 - Pages: 8

New Heritage Doll Company

...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......

Words: 1419 - Pages: 6

New Heritage Doll

... 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:......

Words: 1004 - Pages: 5

The New Heritage Doll Company

...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......

Words: 317 - Pages: 2

New Heritage Doll

...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......

Words: 1840 - Pages: 8

New Heritage Doll

...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 ...

Words: 716 - Pages: 3

New Heritage Doll Company

...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......

Words: 1346 - Pages: 6

New Heritage Doll Company Solution

...359 2020 26.178 Payback Analysis Cash flows Cumulative cash flow Payback period 5-year Cumulative EBITDA 2010 (5.331) (5.331) 2011 (1.261) (6.592) 2012 306 (6.286) 2013 (309) (6.595) 2014 (1.190) (7.784) 2015 1.076 (6.708) 2016 1.141 (5.566) 2017 1.210 (4.357) 2018 1.283 (3.074) 2019 1.359 (1.715) 2020 26.178 24.464 >10 years $ 8.778 Profitability Index NPV/Initial Investment 1,32 NPV of Match My Doll Clothing Line Extension TV growth rate 1% 2% 6.141 $ 7.292 $ 5.075 $ 5.950 $ 4.314 $ 5.019 $ NPV if TV=BV of NWC + PPE $ 3.011 $ 2.687 $ 2.425 Discount rate 7,70% 8,40% 9,00% $ $ $ 0% 5.289 $ 4.408 $ 3.766 $ 3% 8.932 7.150 5.958 NPV of Design Your Own Doll TV growth rate 1% 2% 7.263 $ 9.198 $ 5.526 $ 6.998 $ 4.294 $ 5.479 $ NPV if TV=BV of NWC + PPE $ 3.567 $ 2.980 $ 2.507 Discount rate 7,70% 8,40% 9,00% $ $ $ 0% 5.830 $ 4.404 $ 3.372 $ 3% 11.957 9.016 7.058 1973 Sales forecast Total market volume Market share VOL*SHARE Existing capacity New capacity Price/ton NEW SALES Profits Price/ton Cost/ton Pretax profit/ton x new tons=pre tax profit Tax line 0.48 EBIAT (EBI after taxes) cost of plant/ton x tons added Capex 555 330 225 0,0 0 0,0 900 15 13,5 752 0,35 263,2 325 0 555 0 1974 774 0,4 309,6 325 0 665 0 1975 798 0,45 359,1 325 34,1 760 25,9 1976 822 0,45 369,9 325 44,9 890 40,0 1977 846 0,45 380,7 325 55,7 955 53,2 1978 872 0,45 392,4 325 67,4 1015 68,4 1979 898 0,45 404,1 325 79,1 1070 84,6 1980 925 0,45......

Words: 3437 - Pages: 14

New Heritage Doll Company

...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......

Words: 3636 - Pages: 15

New Heritage Doll

...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 ...

Words: 1403 - Pages: 6

Case Study on New Heritage Doll Company:

...Financial  Theory  And   Research   Case  Study  on  New  Heritage  Doll  Company:      Capital  Budgeting                             Niweina  Song                             Xin  Gu                             Yao-­‐Hsuan  Yeh                             Huiyang  Zhou       Table  of  Contents   Executive  Summary  ......................................................................................................................  2   Evaluation  Logic  ............................................................................................................................  2   Conclusion  Analysis  ......................................................................................................................  3   Pros  and  Cons  of  the  Recommended  Action  ..................................................................................  4   Analysis  of  the  Match  My  Doll  Clothing  Line  .................................................................................  5   Analysis  of  the  Design  Your  Own  Doll  Line ......

Words: 1146 - Pages: 5

New Heritage Doll Company Case

...NEW HERITAGE DOLL COMPANY FINA 6278 Case 1 I. Executive Summary New Heritage Doll Company is a U.S based children toy manufacturer with a well-known national brand: the New Heritage. With its existing three divisions, New Heritage proposed two potential investment projects in order to expand its business while the doll industry was facing a relatively low growth rate. The first proposal is the Match My Doll Clothing line expansion, which is to expand a new clothing product line aimed at matching doll and child clothing and accessories covering all four seasons. While it has potential benefits with the current fashion trend of dressing the same between dolls and children, the New Heritage is facing a challenge of entering a new field and the doubt of being continuable project or not even with a success of the first sale of the cloth collection. The second proposal is a high-end product line which is called Design Your Own Doll that targets at the firm’s existing loyal customers who already held several heritage dolls. Such a project is appropriate with the company’s core business. However, it requires large amount of investment and longtime payback period. Considering the benefits and disadvantages of both the projects, the second proposal seems more compelling due to its match of firm’s core business, longer-term focus, and possibility to enhance customer loyalty. However, the question to expand customer pool was not answered yet. As a result, the......

Words: 1835 - Pages: 8

New Heritage Doll Company Essey

...Liacouras Walk Philadelphia, PA 19122 New Heritage Doll Company: Capital Budgeting Production Division Proposal Recommendation October 25, 2011 Prepared For: Jonathan Scott, President Emily Harris, Vice President Prepared By: Dylan Baird Brittany Brantley David Hamme Executive summary: Given the assumptions available to New Heritage for the forecast of their Match My Doll Clothing line (MMDC) and their Design Your Doll(DYOD) product line, we suggest New Heritage to proceed with MMDC. Despite less potential for exponential growth, MMDC is a much safer, yet more profitable, investment and does require the company to spend as much upfront. By constructing a forecast for the next ten years, we found that the MMDC expansion would have a higher NPV and IRR than the DYOD project. Furthermore, since MMDC requires a less amount for its initial investment than DYOD, it yields a higher profitability index, while having a smaller payback period. MMDC is less risky because it has less of a chance to incur a loss and will pay back the initial investment faster. If the discount rate is raised on the project, the NPV of the DYOD line decreases at a much faster rate than that of MMDC. Additionally, if the projected revenue is less than the forecast, DYOD will also suffer losses at a much faster rate than MMDC. Profitability: In analyzing the forecast for MMDC and DYOD we found that MMDC is a more profitable investment for New Heritage. The projections showed that......

Words: 1183 - Pages: 5

New Heritage Doll Compant

...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.......

Words: 4264 - Pages: 18

New Heritage Doll Compnay

...1801 Liacouras Walk Philadelphia, PA 19122 New Heritage Doll Company: Capital Budgeting Production Division Proposal Recommendation October 25, 2011 Prepared For: Jonathan Scott, President Emily Harris, Vice President Prepared By: Dylan Baird Brittany Brantley David Hamme Executive summary: Given the assumptions available to New Heritage for the forecast of their Match My Doll Clothing line (MMDC) and their Design Your Doll(DYOD) product line, we suggest New Heritage to proceed with MMDC. Despite less potential for exponential growth, MMDC is a much safer, yet more profitable, investment and does require the company to spend as much upfront. By constructing a forecast for the next ten years, we found that the MMDC expansion would have a higher NPV and IRR than the DYOD project. Furthermore, since MMDC requires a less amount for its initial investment than DYOD, it yields a higher profitability index, while having a smaller payback period. MMDC is less risky because it has less of a chance to incur a loss and will pay back the initial investment faster. If the discount rate is raised on the project, the NPV of the DYOD line decreases at a much faster rate than that of MMDC. Additionally, if the projected revenue is less than the forecast, DYOD will also suffer losses at a much faster rate than MMDC. Profitability: In analyzing the forecast for MMDC and DYOD we found that MMDC is a more profitable investment for New Heritage. The projections showed that both projects......

Words: 1183 - Pages: 5