New Heritage Doll Company: Business Overview

Index Executive aestival. 1 Introduction. 2 Case analytic thinking Match My Doll habiliment.. . . . . 2 public figure Your Own Doll.. 3 Comparison. .. . 4 Additional Questions. 5 Recommendations.. 5 adjunct Appendix 1 calculation formulas, definitions and assumptions. 6 Appendix 2 Exhibit 1 & 2. 9Appendix 3 The NPV visibleness 11 Executive Summary The production division at new-fashioned Heritage Doll smart set is considering between two business proposals to recommend at the firms up approach path capital figure meeting in October. In order to prioritize between the two digests, we needed to analyze some(prenominal) companies, quantitatively and qualitatively, to determine which proposal better suits NHDCs goals. Using a qualitative analysis, we analyzed both Match My Doll enclothe drag and comp atomic subdue 18d it to the Design Your Own Doll proposal.We found, after comparing the strengths and weaknesses of both proposals, that MMDCs business case is more compelling. We then analyzed the financial aspect of both projects using the financial information given in the exhibit. In order to complete this analysis we began with a positivity analysis. First we com edited the NPV, IRR and the profitability king in order to determine which of the projects would be more profitable. We found that although DYODs NPV was meagrely gameer, MMDCs ratios seemed more compelling. We then moved on to a hazard analysis, in order to comp be the run a riskiness of the two projects.We found that not only is MMDCs risk lower than that of DYOD, but its profitback period was approximately 30% lower as well. base on these analyses, we recommend that the company should choose the Match My Doll change state extraction expansion proposal. Introduction In this case study, two business proposals from the Production division of the New Heritage Doll Company (NHDC) atomic number 18 being considered for submission at the capital budgeting committee meeting which repai rs decisions at the corpo footstep level for all large spending proposals.The first proposal is to extend the companys Match My Doll Clothing line, and the second is to develop a spick-and-span Design Your Own Doll product. Emily Harris, vice president of NHDCs production division, is weighing the two proposals. Due to constraints on financial and managerial resources, it is possible that the committee get out decline to approve both projects as other divisions of the company such as licensing and retail are too presenting projects that may prove more attractive to the committee. Harris has to be prepared to recommend only unrivalled of the projects.In order to evaluate which of the projects Emily should promote, we look at the criteria of the committee. They give examine the proposed project for consistency with the companys overall business strategy and they will see if the project balances the needs and priorities of each division against the practical, financial, and org anizational constraints of the company. The committee will evaluate whether the proposed project will strengthen the entire company, not just the circumstance division. We would try to evaluate which of the proposals based on the projects qualitative and quantitative analysis.We have used in our analysis both the figures that were supplied by the line managers, and further information that seem relevant from online researches we had conducted. Match My Doll Clothing This coronation proposal is the expansion of the Match My Doll Clothing line (MMDC), an existing clothing line of matching doll and child clothing and accessories. The original line was a success, due to the strong credit that girls feel with their NH dolls. Due to the growing popularity of the line the lines manager believe that the timing is slump for expansion.The original line selected several items of New Heritage dolls fashions and produced identical items in girls sizes. However, the number of items was limite d. The proposed expansion would occasion an All Seasons Collection of apparel and gear covering all four while of the year. It would expand the number of matching doll and girl clothing items available One of the benefits of expanding the MMDC line is that the line has already demonstrated the commercial viability of the matching doll and child clothing model. The concept has a prove track record and now the company has only to further build on this successful model.Furthermore, the juvenile positive publicity engendered by the celebrity sightings, will create an even greater demand for the product, and will allow for the maintenance of premium pricing. We believe that the expanded line will be at least as profitable as the existing line. Another strength this project possesses is the projects subside risk , which is almost identical to that of MMDCs existing business line. One of our concerns regarding the expansion of MMDCs clothing line is the companys inexperience within th e clothing industry. NHDC will have to compete external its modern niche of dolls and accessories.The fickle nature of childrens fashion trends requires that the management keep up with current market trends, in order to call for note its premium pricing. Another concern we think is important to do by is the expected life clip of the project. Based on the risk that the company would not be able to taking into custody up to date with the current trends and fashion we think that the life span of the projected CF may be somewhat optimistic, and might not reflect correctly the characters of this project. However, we do believe that for the sake of comparing this projection should be kept.Another concern that arises from the unexpectedness of childrens fashion trends is that the company may be face with a very limited time frame in which it can make profitable investment decisions. One of the opportunities that arise with the current proposal is the reduction in the seasonality o f the companys sales and earnings. The youthful line created an additional benefit of supplying clothing all year round, which in turn could tender the firm with a more stable revenue stream. By taking advantage of the off handbill discount offered by some suppliers and anufacturers, the line manager expected to reduce the companys seasonality which would create a more stable revenue stream for the firm. A threat which attributed to this proposal is its reliance on supposed discounts offered by suppliers and manufacturers. The failure of obtaining these discounts can cause an increase in costs, resulting in lower profitability. upper-case letter expenditures in 2010 are predicted to be spirited since the project is during its first year of operation . In the quest year they are cool it relatively steep, but this can quieten be explained by it still being the beginning long time of operation. 012-2013 have the lowest Capital expenditure of all projected years this could be e xplained by the high growth in revenues . It is important to note that these years are considered solar day atomic number 53- since the product is new in the market, the market should embrace the product first and the depreciation is still on the lower numbers. From 2014 and onward, we see an increase in the firms Capital expenditure bring together with a constant growth . This might be due to maintaining the operation scope and compensating for the growth in depreciation (During year 2015 and onward). Design Your Own DollThe Design Your Own Doll (DYOD) project sets out to make dolls products more personal to customers, by creating dolls that can be designed to look like their owners. The new project was targeted to both new customers and loyal customers, who may already own a number of dolls, but are looking to add a unique addition to their collection. The strategy behind the project is that by graceful an active part of the creation of the dolls the customers will become more loyal customers. The whole creation and familiarity will obtain part in a new section of New Heritages website.We believes that because of all the new features, the experience and the uniqueness in this product, the customers would be willing to pay premium price. The fact that this project is web-based also enlarge the accessibility for customers, and by that enabling people that have hard time to approach an tangible store to still purchase the companys product. On the other hand, at that place is a risk that the premium price, as discussed earlier, might narrow the audience since it approach high socio economic level people. Due to the projects unique the initial investing costs are higher, but so does the expected return .As a product which is one of a kind (OOAK), the production costs are going to be higher than usual (in position fixed costs on a per unit basis, which come from low production runs and volume ), sum that the payback period would be high. In addition, th ere are untested elements that need to be put into the manufacturing process, a risk that might cause future unexpected expenses. This project is considered to be a high risk project, due to the fact that it is completely new and contains (as mentioned) high costs of production.The initial equipment costs high (comparing to MMDC and) the time for it to be ready for production is going to be two years instead of 1 year in the MMDC proposal. Moreover, there is more equipment that shall be installed by the end of 2014 and thats why in the forecasts of DYOD (exhibit 2) there is a very high spike in the capital expenditures line. The good thing in buying this kind equipment is the option to pay custom equipment quarterly, so New Heritage can decide to pay everything in front, so it can get a sustainable discount.The projections for this project are based upon a near-flaw slight operation. Since this project was not tested and there is no experience with it, this may add to the riskiness of the project. New Heritages website should be developed with the new software, which will take a year to write and test before starting with the sales. This is an explanation for the high initial R&D costs . Financial Comparison lolly Present Value In order to evaluate both of the projects, we used the projections for MMDC and DYOD and calculated MMDCs NPV to be slightly lower than that of DYOD.Our projections show that MMDCs NPV is $7,150,070 , while DYODs is $7,298,100 . Due to the relatively small distinction between the NPVs we found, we believe that we should consider putting more emphasis on alternative factors when coming to a final decision. IRR Although we observed rather similar NPVs, the two projects IRR are very different. Despite the slightly lower NPV, MMDC has an IRR of approximately 24%, compared to the 18% IRR of DYOD. This substantial difference weve found can be explained by the significantly lower initial spending on capital by MMDC . advantageousness index Using the Profitability index (PI) allows us to quantify the amount of value each project makes for every dollar invested. We calculated the Profitability ratios for both projects and found MMDC PI to be 2. 367, compared to 1. 17 of DYOD. After analyzing these results, it would seem that MMDC would generate a higher return on their investment. Risk analysis For MMDC, we took on the recommended moderate risk rate of 8. 4%. Based it is an already existing line that has no need for consumer acceptance, in addition to its proven ability to maintain premium prices, we decided that it was a logical assumption.For the DYOD, we assumed a high risk rate of 9%. After considering multiple factors, such as DYODs lengthy payback period , relatively high fixed costs and the use of new untested elements in the manufacturing process, a high discount rate is appropriate. Given these assumptions, we can see that MMDC is less risky than DYOD. Furthermore, we analyzed the NPV Profile and found that MMD Cs NPV is less sensitive to increases in the discount rate than DYOD. Another relevant figure we examined is the projects payback periods, which calculates the amount of time until a projects initial investment is returned.According to our calculations, MMDCs payback period is lower than that of DYOD . bandage MMDC will recuperate their initial investment in slightly over 7 years, it will take DYOD over 10 years to return their initial investment. Since the Payback period we calculated doesnt take into account the time value of money, we calculated the Discounted Payback Period, and confirmed that here too, MMDC is faster at recuperating its initial investment . Profit Margin The average profit margin for the MMDC is 14. 9%, while for the DYOD it is 12. 55%. This suggests that MMDC is a more profitable company, and may have better control over its costs than DYOD. Acid adjudicate The result for the MMDC is 2. 43, while the result for DYOD is 2. 72. The significant of this is relat ing to the worst case scenario what if the project would fail and the firm will need to get rid of it. Internal growth rate Even though we dont know how frequently of New Heritages NI goes to dividends, we know that in both of the cases it will be the same and it would be