New Heritage Doll

1638 WordsNov 19, 20137 Pages
New Heritage Doll New Heritage Doll Company: Capital Budgeting MGT 6060 20 September 2011 Overview Two business proposals from the Production division of the New Heritage Doll Company are being considered for submission to the capital budgeting committee. Only one proposal will be submitted. The proposals are: Match My Doll Clothing Line Expansion and Design Your Own Doll. A systematic process will be used to determine which proposal to recommend. Criteria Include: 1. Comparison of the business cases 2. NPV analysis 3. IRR and payback period analysis 4. Analysis of additional information 5. Recommendation Comparison of the Business Cases Most Compelling Business Case Match My Doll Clothing Line Expansion Match…show more content…
This cost will grow at 5% per year, over the course of the project, to account for cost of living and salary increases. NPV Analysis Table 3 - NPV Scenarios Discount Rate | Corporate Discount Rates (Risk) | | 7.7% (low) | 8.4% (med) | 9.0% (high) | Match My Doll Clothing Line (Baseline) | $ 2,978.59 | $ 2,653.89 | $ 2,391.58 | Design Your Own Doll (Baseline) | $ 3,836.70 | $ 3,248.91 | $ 2,776.07 | Design Your Own Doll (+Additional Labor) | $ 1,319.93 | $ 809.38 | $ 399.68 | * Match My Doll Clothing Line = Moderate Risk (Declared) * Design Your Own Doll = High Risk (Assumption) Comparing only the baseline scenarios for the declared and assumed levels of risk, the Design Your Own Doll proposal shows the highest NPV. However, when the additional cost of labor is factored into the comparison, the NPV of Design Your Own Doll +Additional Labor is reduced to $399,680. Comparing the baseline Match My Doll Clothing Line Expansion to the Design Your Own Doll +Additional Labor shows that Match My Doll Clothing Line has approximately $2.25 million more value than Design My Own Doll. IRR Analysis Table 4 – IRR Sensitivity Analysis | | IRR | Revenue Change | Match My Doll Clothing Line | Design Your Own Doll (baseline) | Design Your Own Doll (+additional labor) | 3% | 18.24% | 14.68% | 10.86% | 2% | 17.74% | 14.28% | 10.45% | 1% | 17.24% | 13.87% | 10.04% | 0% | 16.74% | 13.46% | 9.62% | -1% | 16.23% | 13.04% | 9.20% | -2% | 15.72% | 12.62%

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