Essay on Capital Budgeting Hbr

2247 Words Dec 22nd, 2015 9 Pages
REVISED: 11/05/10

O NL IN E SI MU LA TIO N F OR EG R OU ND R E A D IN G

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
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The production division generated $125 million in revenue and
$7.5 million in operating profit a year.1 Seventy‐five percent of its sales were internal, to New
Heritage’s retail division; 25% of its revenues were generated from private‐label goods manufactured for other firms. The dolls ranged from relatively inexpensive baby dolls ($15 to $30 retail price range) to fashion dolls modeled after movie stars that were targeted as upscale collectors’ items ($75
1 The division revenue figures include approximately $95 million of internal sales within divisions which are eliminated when

considering consolidated revenue for the company.
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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.
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