Capital Budegting Essay

877 Words Sep 9th, 2015 4 Pages
New Heritage Doll Company – Capital Budgeting
Harvard Business School – Case 4214

The New Heritage Doll Company’s production division has been has given the responsibility of evaluating two proposals for new projects. The first project expands on a current “Match My Doll Clothing Line”, and the second involves creating a fully customized doll under the “Design Your Own Doll” proposal.

Proposal Backgrounds

Match My Doll Clothing Line Expansion (MMDCLE)
The Match My Doll Expansion includes the further development of an already establish, successful doll line. The original line included limited outfits and accessories for warm weather only. It had become a popular line once celebrity children were photographed wearing the
…show more content…
Software and application development for the website and modifications to existing technology infrastructure will require help from in-house IT personnel. The R&D and upfront marketing costs are comparable to those proposed in the MMDCLE project. However, manufacturing is concerned with the increased complexity and expense of constructing these dolls as well as the dependence on flawless operation. This project also commands higher initial outlays and a longer payback period.

Financial Analysis

Match My Doll Clothing Line Expansion (MMDCLE)

The initial expenditures for this project include upfront R&D & marketing costs, as well as an $800 investment in working capital, and a $1,470 investment in property, plants and equipment. Based on the information provided by Ms. McAdams, this is a moderately risky project (similar to the current line). Therefore, we evaluated the cash flows based on a discount rate of 8.4%. We did not include the $800 as a capital expenditure because it was stated to be part of the existing clothing line. After reviewing all financial information for the project, we have concluded that the NPV will be $603.08 with an IRR of 12% (see the attached spread sheets for clarification). Since the NPV is positive and IRR is greater than the discount rate, the project will prove to be a beneficial, profitable investment.

Design Your Own Doll (DYOD)

The initial expenditures for this project also

Related Documents