1615 Words Sep 12th, 2013 7 Pages
Case 1 – New Heritage Doll Company
1. Set forth and compare the business cases for each of the two projections under consideration by Emily Harris. Which do you regard as more compelling?
Productions was New Heritage´s largest division as measured by total assets, and easily its most asset-Intensive. Approximately 75 % of the division´s sales were made to the company´s retailing division, with the remaining 25% comprising private label goods manufactured for other firms. The division revenue figures include approximately \$95 million of internal sales within divisions which are eliminated when considering consolidated revenue for the company.
We must look closer on the financial projections and the operating details for the two
Compute the IRR and payback period for each project. How should these metrics affect Harris´s deliberations? How do they compare to NPV as tools for evaluating projects? When and how would you use each?
IRR Analysis
Table – IRR Sensitivity Analysis |
Revenue Change | Match My Doll Clothing Line | Design Your Own Doll (baseline)
3% | 18.24% | 14.68% |
2% | 17.74% | 14.28% |
1% | 17.24% | 13.87% |
0% | 16.74% | 13.46% |
-1% | 16.23% | 13.04% |
-2% | 15.72% | 12.62% |
-3% | 15.21% | 12.19% |
-4% | 14.69% | 11.77% |
-5% | 14.16% | 11.33% |
-6% | 13.63% | 10.90% |
The model reflects a change in revenue from +3% to -6%.
IRR of NPV is not used because sensitivity is included in the discount rate.
Payback Period Analysis
Payback period for each of the scenarios:
* Match My Doll Clothing Line Expansion (baseline) = 8.43 years
* Design Your Own Doll (baseline) = 10.09 years

4. What additional information does Harris need to

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