New Heritage Doll Company: Capital Budgeting

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New Heritage Doll Co.
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Capital Budgeting

New Heritage Doll Company: Capital Budgeting
In the case of the New Heritage Doll Company, Emily Harris, Vice President of the company’s production division, is in the process of reviewing and analyzing two capital budgeting proposals within her division. Both proposals intend to spur long-term growth and to strengthen the division’s innovative product lines. Based on various financial and logistical constraints, Harris would only be able to choose one of the projects. The first project, proposed by Marcy McAdams, involves expanding the Match My Doll Clothing Line (MMDC). The second project proposed by Elizabeth Holtz, aims to introduce customization to the existing doll line, Design Your Own Doll (DYOD). In order to correctly identify which project is more compelling and valuable, Harris needs to carefully evaluate the projects based on qualitative and quantitative metrics such as the NPV, payback period, IRR and how well each project is aligned with corporate goals and strategies. When comparing the value of two proposals within a division it is important to not only compare the net present value of the two, but to also consider how each project aligns with the company’s high-level strategies, core competencies and manufacturing capabilities. Unlike the DYOD proposal, MMDC has already established itself as a successful operation allowing Emily to analyze historical and factual data as opposed to mere projections. On the other hand, one must question whether manufacturing children’s clothing plays into the strengths of New Heritage and whether such an undertaking is aligned with its mission and long-term strategies. While MMDC has achieved success, it is critical for Emily to evaluate how scaling up production would affect operating and overhead costs. Even though the DYOD proposal requires new manufacturing...
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