New Heritage Doll Cmpany Case Study

New Heritage Doll Cmpany Case Study

Executive Summary:

New Heritage Dolls was founded in 1985 by Ingrid Beckwith. The company mainly produce the dolls which are have unique storylines and wholesome themes. In 2009, the company has $245 million revenue and $27 million of operating profit through production, retailing, and licensing.  Recently, with the grow of company, New Heritage begin to have financial analyses, and focus on the forecasting for the net present value, internal rates of return, payback period, and investment metrics.

Since Emily Harris be a Vice President of the company, she supports to set two project proposals for the capital budgeting meetings. The first project is called Match My Own Doll (MMDC). It is an expansion for original plan, and the new function is matching clothing for dolls. Another one is Design Your Own Doll (DYDD), and it is a new project which let the customer design their own dolls by themselves. However, the capital committee will decline the one of the proposal because they consider on budgeting. Therefore, Emily should decide to choose one project and decline another one.

The two projects will have option to accept or drop, and the standard is depending on the determining of the net present value (NPV), internal rates of return (IRR) and payback period. The project which has a higher NPV and IRR would be acceptable for investment. In addition, if the NPV is positive, it means the project can bring more return to shareholder. If the NPV is negative, the proposal will be impossible. Our recommendation is choosing the MMDC because of the higher NPV and IRR of this proposal, and the payback period is shorter than DYDD.

Introduction:

New Heritage Doll as a company which produce unique dolls to girls, faces a choose on two project proposals. The situation is there are two project which called MMDC and DYDD, and the company should have a choice to invest in these two projects. The MMDC is an expansion project and the DYDD is a new one. To estimate the value of these two projects, the company decides to choose the proposal through the compare of the NPV, IRR, payback period, and other investment metrics.

Analysis and Recommendation:

As for Match My Doll Clothing, because this line success quickly, the suggestion for this project is contained large R&D, market research, and marketing to make the line can has a longer-term successful. Since the MMDC already has the development in few years, it has medium risk and the discount rate is 8.4%. Comparatively, Design Your Own Doll as a new project, it need larger amount of initial investment. Therefore, it has higher risk and the discount rate is 9%. (这个后面要比较NPV 需要具体数据哈)

In addition, without the NPV, IRR, the payback period and profitability index are also metrics for the investment. The first is compare with IRR of the two projects, and choose the project which has higher IRR (后面比较两个project的IRR). Meanwhile, the payback period also can evaluate the two projects. It can know the time that the cash flow from the project to return the investment. Looking at payback, (比较数据). At the same time, profitability index is a tool for measure the value of the two proposals. This index compares the cash flow of project and the investment for projects, so it can suggest which project will have more profit. (数据比较)

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