New Heritage Doll

Topics: Net present value, Marketing, Strategic management Pages: 6 (1651 words) Published: December 2, 2013
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 My Doll Clothing Line Expansion is the the most compelling opportunity. This initial recommendation is based solely on a qualitative comparison of the cases and the financial exhibits provided by the brand managers. A SWOT (Strength, Weakness, Opportunity, & Threat) analysis was used to aid the decision process. See Tables 1 & 2 for SWOT analysis. Benefits of the Match My Doll Clothing Line Expansion:

* Success of the original line of business
* Utilization of the businesses existing strengths
* Long term ability for the product to stay up to date and drive business Concerns for the Design Your Own Doll:
* High risk associated with developing a proprietary software system * Complexity of manufacturing
* High break-even sales volume
Overview Business Case 1 – Match My Doll Clothing Line Expansion The proposal for the Match My Doll Clothing Line Expansion is to expand the line, based on the success and popularity of the existing product line, to include products for all four seasons. The current product includes a doll and two sets of matching warm weather clothing for child and doll. See Table 1 for SWOT analysis. Benefits of the expanded business line include: * Projected to be as profitable as the existing line.

* Opportunities exist for off-peak discounts in the supply chain and manufacturing * Reduction of seasonality in sales and earnings
Overview Business Case 2 – Design Your Own Doll
The proposal for the Design Your Own Doll is to create a new line of business of “one-of-a-kind” dolls for existing loyal customers’ collections. Market research with focus groups indicates that girls want dolls like themselves. The new business would enable customers to: * Participate in the experience of creating the doll

* Go to a website and customize the doll’s physical attributes, such as hair and eye color * Select accessories and clothing
*
Once the customer has completed the design, the doll is manufactured and shipped to the customer. A benefit of the new business line is premium pricing. The intent of the business is to create a new market segment around design a doll (designing a doll, or did you mean Design Your Own Doll). See Table 2 for SWOT analysis. One of the main drawbacks of Design Your Own Doll is the higher costs associated with the customization process, which outweigh its benefits. In sum, based on our initial evaluation, the Match My Doll Expansion appears to be the more attractive project. Overview Financial Analysis

Three scenarios were analyzed in order to view a range of possible financial outcomes. 1. Match My Doll Clothing Line Expansion (Base scenario) as described in the operating projection 2. Design Your Own Doll (Base scenario) as described in the operating projection 3. Design Your Own Doll (+Additional Labor scenario)

+Additional Labor scenario - This scenario is included because the brand manager’s decision to exclude some initial labor costs, as well as ongoing labor costs, is a concern. The brand manager’s decision appears to be based on the assumption that internal resources will be allocated at no additional cost to support the project. However, these resources must be factored into a scenario in case the assumption is false....
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