New Heritage Doll Company

Topics: Net present value, Free cash flow, Cash flow Pages: 3 (591 words) Published: October 19, 2014
New Heritage Doll Company
1. Describe and compare the business rationales for each of the two project proposals under consideration. Which do you feel is the more compelling? Project 1: Match My Doll Clothing Line Expansion

Expand the successful Match My Doll Clothing Line to include matching all-season clothing for tween girls and their dolls. Pros:
Current popularity will enable company to maintain premium prices. Company could take advantage of off-peak discounts offered by some suppliers and contract manufacturers. Would help reduce the seasonality in New Heritage’s sales and earnings. Project poses moderate risk – about the same as the production division’s existing business as a whole. Cons:

Company has to exploit the opportunity without delay to be able to exploit the current popularity of the original Match My Doll Clothing line. Large outlays for R&D, market research and marketing are needed. Project 2: Design Your Own Doll

Targets existing customers and will offer customized dolls that the customer could customize to create one-of-a-kind addition to their existing collection of dolls. Pros:
Market research with focus group indicates that there is a lot of enthusiasm for the product concept. Company will be able to charge premium prices for this product. Will improve customer loyalty.

Will create a unique experience for customers.
Increased manufacturing complexity and expense, involves higher risk. Low production runs and volumes would mean higher fixed costs per unit. Therefore, higher breakeven volume for project (longer payback period). Would require the company to make significant changes to its existing technology infrastructure, expand its webhosting capacity and involve legal measure to implement new third party service agreements to provide better service quality. Longer development time (including product testing) - up to 12 months. Much larger initial investment required than the first project. The Match My Doll Clothing...
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