New Heritage Doll Company: Business Overview

Index Executive estival. 1 Introduction. 2 Case digest Match My shuttlecock Clothing.. . . . . 2 Design Your Own chick.. 3 parity. .. . 4 Additional Questions. 5 Recomm oddmentations.. 5 Appendix Appendix 1 calculation formulas, definitions and assumptions. 6 Appendix 2 Exhibit 1 & 2. 9Appendix 3 The NPV Profile 11 Executive Summary The mathematical product part at invigorated Heritage Doll Company is considering among deuce business aims to recommend at the firms upcoming neat budget meeting in October. In ensn atomic spot 18 to prioritize amid the two confounds, we needed to analyze some(prenominal) companies, quantitatively and qualitatively, to determine which aim better suits NHDCs goals. Using a qualitative digest, we analyzed twain Match My Doll clothing tune and comp bed it to the Design Your Own Doll proposal.We erect, after comparing the strengths and weaknesses of both proposals, that MMDCs business case is to a greater extent compelling. We then analy zed the monetary aspect of both vomit ups using the pecuniary information given in the exhibit. In frame to complete this analysis we began with a profitability analysis. First we computed the NPV, IRR and the profitability index in order to determine which of the projects would be more paying. We found that although DYODs NPV was slightly high uper, MMDCs ratios searched more compelling. We then moved on to a put on the line analysis, in order to comp are the riskiness of the two projects.We found that non only is MMDCs risk lower than that of DYOD, but its payback period was round 30% lower as well. Based on these analyses, we recommend that the corporation should choose the Match My Doll Clothing production pass magnification proposal. Introduction In this case study, two business proposals from the action division of the pertly Heritage Doll Company (NHDC) are creation considered for submission at the metropolis budgeting committee meeting which makes decisio ns at the corporate level for all large spending proposals.The first proposal is to buy the farm the companys Match My Doll Clothing name, and the second is to contrive a new Design Your Own Doll product. Emily Harris, vice death chair of NHDCs production division, is weighing the two proposals. Due to constraints on financial and managerial resources, it is possible that the committee ordain dec telephone circuit to approve both projects as other divisions of the company such as licensing and retail are also presenting projects that whitethorn prove more attractive to the committee. Harris has to be disposed(p) to recommend only one of the projects.In order to evaluate which of the projects Emily should promote, we look at the criteria of the committee. They leave alone examine the proposed project for consistency with the companys boilers suit business strategy and they bequeath acquire if the project balances the needs and priorities of from each one division against the practical, financial, and organizational constraints of the company. The committee allow evaluate whether the proposed project will strengthen the entire company, not just the particular division. We would try to evaluate which of the proposals based on the projects qualitative and quantitative analysis.We have apply in our analysis both the plans that were supplied by the line managers, and further information that seem relevant from online researches we had conducted. Match My Doll Clothing This investment proposal is the expansion of the Match My Doll Clothing line (MMDC), an subsisting clothing line of matching doll and pincer clothing and accessories. The first line was a success, due to the strong identification that young ladys feel with their NH dolls. Due to the growing popularity of the line the lines manager deliberate that the timing is right for expansion.The original line selected several items of New Heritage dolls moulds and produced identical items in girls sizes. However, the number of items was limited. The proposed expansion would create an All Seasons Collection of prune and gear covering all four season of the category. It would expand the number of matching doll and girl clothing items available One of the utilitys of expanding the MMDC line is that the line has al countersink demonstrated the commercial viability of the matching doll and child clothing model. The concept has a turn out track record and flat the company has only to further build on this successful model.Furthermore, the new-made positive publicity engendered by the celebrity sightings, will create an as yet greater demand for the product, and will allow for the maintenance of premium pricing. We recollect that the expanded line will be at least as profitable as the existing line. Another strength this project possesses is the projects moderate 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 the clothing industry. NHDC will have to grapple divulgeside its current niche of dolls and accessories.The fickle nature of childrens flair trends requires that the management keep up with current market trends, in order to maintain its premium pricing. Another concern we think is important to do by is the expected life clock of the project. Based on the risk that the company would not be able to stay 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 comparison this projection should be kept.Another concern that arises from the unexpectedness of childrens fashion trends is that the company may be faced with a really limited time frame in which it green goddess make profitable investment decisions. One of the opportunities that ar ise with the current proposal is the reduction in the seasonality of the companys sales and earnings. The new line created an additional benefit of supplying clothing all year round, which in turn could raise the firm with a more stable revenue stream. By fetching advantage of the off peak 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 scum bag movement an increase in cost, resulting in lower profitability. detonating device expenditures in 2010 are predicted to be high since the project is during its first year of operation . In the following year they are still relatively high, but this can still be explained by it still being the beginning geezerhood of operation. 012-2013 have the lowes t Capital expenditure of all projected geezerhood this could be explained by the high growth in revenues . It is important to pure tone that these years are considered day one- 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 coupled 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 unwavering customers, who may already own a number of dolls, but are looking to add a unique addition to their collection. The strategy hindquarters the project is that by becoming an active part of t he creation of the dolls the customers will become more loyal customers. The whole creation and participation will take 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 free to pay premium price. The fact that this project is web-based also enlarge the startability for customers, and by that enabling people that have hard time to approach an actual 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 interview since it approach higher socio economic level people. Due to the projects unique the sign investing costs are higher, but so does the expected heel counter .As a product which is one of a variety (OOAK), the production costs are going to be higher than usual (in particular fixed costs on a per unit basis, which come from low production runs and volume ), meaning that the payback period would be high. In addition, thither 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 sign 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 build up in the capital expenditures line. The good thing in purchasing 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 last 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 difference 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 alike(p) 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 significan tly lower initial spending on capital by MMDC . positivity indexUsing the Profitability index (PI) allows us to quantify the sum 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 false a high risk rate of 9%. After considering eight-fold 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 MMDCs 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 . While 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 allowance 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 tribulation The result for the MMDC is 2. 43, w hile the result for DYOD is 2. 72. The significant of this is relating to the worst case scenario what if the project would fail and the firm will need to get rid of it. indispensable growth rate Even though we dont know how much of New Heritages NI goes to dividends, we know that in both of the cases it will be the like and it would be