Essay on Capital Budgeting Hbr
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 …show more content…
$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.
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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