Corporate Finance
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 proposals. By looking we can see a big difference in Revenue growth. We realize that Design your own doll can handle much more additional annual revenue according to the resources in the balance sheet.
According to the outlays the initial expenditures for Design Your Own Dolls is much higher than Match my Doll Clothing. As with Match my Doll Clothing the required R&D and marketing costs would be tax deductible.
EBIT is a good gauge of how well those two companies is being managed. It is watched closely by all stakeholders, because it measures both overall demand for the company´s products and the company´s efficiency in delivering those products. The operating projections tell us that Design Your Own Doll has gained more in operating profits.
Substantial investment in working capital (primarily work in process inventory of partially manufactured dolls) would be required beginning in 2011 for Match My Doll Clothing to support the forecasted level of sales.
The value of a risky alternative to the decision maker may be different than the expected value of the alternative because of the risk that the alternative poses of serious losses. The concept of the certainty equivalent is useful for such situation. Factors considered in the
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 proposals. By looking we can see a big difference in Revenue growth. We realize that Design your own doll can handle much more additional annual revenue according to the resources in the balance sheet.
According to the outlays the initial expenditures for Design Your Own Dolls is much higher than Match my Doll Clothing. As with Match my Doll Clothing the required R&D and marketing costs would be tax deductible.
EBIT is a good gauge of how well those two companies is being managed. It is watched closely by all stakeholders, because it measures both overall demand for the company´s products and the company´s efficiency in delivering those products. The operating projections tell us that Design Your Own Doll has gained more in operating profits.
Substantial investment in working capital (primarily work in process inventory of partially manufactured dolls) would be required beginning in 2011 for Match My Doll Clothing to support the forecasted level of sales.
The value of a risky alternative to the decision maker may be different than the expected value of the alternative because of the risk that the alternative poses of serious losses. The concept of the certainty equivalent is useful for such situation. Factors considered in the