New Heritage Doll

995 Words Jan 26th, 2014 4 Pages
1. Compute the Free Cash Flows for the years 2010 to 2020 for both projects

See excel File attached.

Assumptions: * We assumed the required working capital in table 2 and 3 is the amount required in 2010, for further years we computed the WCR based on the ratio’s of minimum cash balance, number of days sales outstanding, inventory turnover and days payable outstanding (deducting the depreciation as instructed) * We assumed the SG&A and fixed production costs were project specific and therefore included them in the FCF analysis

2. Compute the NPV of both projects. Which would you recommend? What if they are not mutually exclusive?

NPVMMDC = 7,150

NPVDYOD = 7,298

Based solely on the NPV analysis we would
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We might also want to take competitor actions into account and how these may affect our decision making (e.g. perhaps first mover advantages in the design your own doll project might be very positive, but if a competitor introduces a similar value proposition between the investment decision and market introduction (2 years later), this may have a negative impact on the projects profitability) * We have not taken cannibalization into account for the DYOD project. It may actually move customers away from the standard doll.

Advantages * We are not looking at which projects may have a positive impact on the company’s other business units. Perhaps one project stimulates the retail of licensing business more than the other. * The MMDC project could allow you to start using fashion outlets as an additional sales channel for the clothes and even increase sales of all dolls in the process * The MMDC project will be moving in another product category (fashion) and may create a brand name

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