Could you help with this assignment. Investment Decisions II

GBA 7221 - Devaney

New Heritage Doll Company

Case Instructions and Grading Rubric

This is an individual assignment and no intra-team discussions are expected to occur. Your work must be your own.

Read the entire New Heritage Doll Company case. The case is in the Spring Course Package. From the information given:

1. Use the operating projections and other assumptions provided for each project to compute the net present value (NPV), internal rate of return (IRR), payback period, 5 year cumulative EBITDA, and profitability index for each using the template provided.

Write a brief report (3 ? 5 pages 1.5 spacing not including title, contents, exhibits) that answers the following questions:

1. Which project creates more value? Why?
2. How do the IRR, payback period, 5 year cumulative EBITDA, and profitability index compare to
3. NPV as tools for evaluating projects? When and how would you use each?
4. If Harris is forced to recommend one project over the other, which should she recommend?
5. Why?
6. Elizabeth Holtz, brand manager for the Heirloom Dolls division planned to use existing IT staff to
7. develop the web-based software tools and order entry system required for the Design Your Own Doll Project. These costs were not included in the initial outlays or forecast presented as the development personnel Holtz needed were considered ?corporate? resources. Do you agree or disagree? If these costs were included would it change your answer to question 4?

The entire case should be written up via a business report format. Place all your answers in a word document and submit your word document to Moodle using the assignment submission procedure below. You may include one supplemental excel workbook with your document submission.

Assignment Submission Procedure: the completed assignment should be prepared as a Word document titled NewHeritageDoll_LastnameFirstinitial. The supplemental spreadsheet should have the same file name designation.

Points are allocated as follows:

Item 1: 50 Item 2: 10 Item 3: 10 Item 4: 10 Item 5: 10

Final 10 points will be based on the overall case content, clarity, completeness, literacy, grammar, spelling, punctuation, and document design. All points will be allocated using the following criteria:

Links

Excellent Professional 100%

Good EMBA level + 90%

Adequate Graduate level 80%

Deficient 70% or below

Business Report Format

Tips for writing a business report

New Heritage Doll Company: Capital Budgeting Selected Operating Projections for Match My Doll Clothing Line Expansion Exhibit 1 2010 Revenue 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4,500 6,860 8,409 9,082 9,808 10,593 11,440 12,355 13,344 14,411 52.4% 22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Revenue Growth Production Costs Fixed Production Expense (excl depreciation) Variable Production Costs Depreciation 575 575 587 598 610 622 635 648 660 674 2,035 3,404 4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685 152 152 152 152 164 178 192 207 224 242 0 2,762 4,131 5,029 5,419 5,853 6,321 6,827 7,373 7,963 8,600 Selling, General & Administrative 1,250 1,155 1,735 2,102 2,270 2,452 2,648 2,860 3,089 3,336 3,603 Total Operating Expenses 1,250 3,917 5,866 7,132 7,690 8,305 8,969 9,687 10,462 11,299 12,203 (1,250) 583 994 1,277 1,392 1,503 1,623 1,753 1,893 2,045 2,209 Total Production Costs Operating Profit Working Capital Assumptions: Minimum Cash Balance as % of Sales 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Days Sales Outstanding (365 day year) 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x Inventory Turnover (prod. cost/ending inv.) Days Payable Outstanding (based on tot. op. exp.-depr.) Capital Expenditures 1,470 Tax Rate 40% Discount Rate 8.4% Terminal Value growth factor 3.0% Net Working Capital Accounts 2010 7.7x 8.3x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 30.8x 30.9x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 952 152 152 334 361 389 421 454 491 530 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Cash Accounts Receivable Inventory Accounts Payable Net Working Capital 800 DNWC 800 NPV Analysis period Free Cash Flows 0 1 2 3 4 5 6 7 8 9 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EBIT (1-t) plus depreciation less DNWC less capital expenditures Free Cash Flows Terminal Value FCF + Terminal Value Discount factor Present value NPV IRR Analysis FCF + Terminal Value IRR Payback Analysis Free Cash Flows Cumulative cash flow payback period 5 year Cumulative EBITDA (2011-2015) Profitability Index New Heritage Doll Company: Capital Budgeting Selected Operating Projections for Design Your Own Doll Exhibit 2 2010 Revenue 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 6,000 14,360 20,222 21,435 22,721 24,084 25,529 27,061 28,685 139.3% 40.8% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% Revenue Growth Production Costs Fixed Production Expense (excl depreciation) 0 1,650 1,683 1,717 1,751 1,786 1,822 1,858 1,895 1,933 Variable Production Costs 0 2,250 7,651 11,427 12,182 12,983 13,833 14,736 15,694 16,712 Depreciation 0 310 310 310 436 462 490 520 551 584 Total Production Costs 0 4,210 9,644 13,454 14,369 15,231 16,145 17,113 18,140 19,229 Additional development costs (IT personnel) Selling, General & Administrative 1,201 0 1,240 2,922 4,044 4,287 4,544 4,817 5,106 5,412 5,737 Total Operating Expenses 1,201 0 5,450 12,566 17,498 18,656 19,775 20,962 22,219 23,553 24,966 (1,201) 0 550 1,794 2,724 2,779 2,946 3,123 3,310 3,509 3,719 Operating Profit Working Capital Assumptions: Minimum Cash Balance as % of Sales 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Days Sales Outstanding (365 day year) 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x Inventory Turnover (prod. cost/ending inv.) 12.2x 12.3x 12.6x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x Days Payable Outstanding (based on tot. op. exp.-depr) 33.7x 33.8x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 0 310 310 2,192 826 875 928 983 1,043 1,105 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Expenditures 4,610 Tax Rate 40% Discount Rate 9.0% Terminal Value growth factor 3.0% Net Working Capital Accounts 2010 Cash Accounts Receivable Inventory Accounts Payable Net Working Capital 1,000 DNWC 1,000 NPV Analysis Free Cash Flows period 0 1 2 3 4 5 6 7 8 9 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EBIT (1-t) plus depreciation less DNWC less capital expenditures Free Cash Flows Terminal Value FCF + Terminal Value Discount factor Present value NPV IRR Analysis FCF + Terminal Value IRR Payback Analysis Free Cash Flows Cumulative cash flow Payback period 5 year Cumulative EBITDA (2011-2015) Profitability Index