Simulation: Revenue and Doll Clothing Line

Topics: Revenue, Net present value, Income Pages: 6 (3645 words) Published: October 27, 2014

Group Member: Huiqiong Wang, Zhengyangzi Zhan, Yang Zhou
Group Number: 5
Date: 10/22/2014
Instructor: Janet BartholowIntroduction
This paper is aim to find the best way to run the New Heritage Doll Company by running simulation. We use different strategies to selecting projects in each round by using limited budget. We have run the simulation more than ten times to make sure we found the best way to run the company and the company is in the best condition. The given scenario is never change and we have the opportunity to run simulation multiple times, it made us easier to know which strategy is the best. We use different strategies in each one of our simulations. These strategies can mainly divided into three parts, which are conservative approach, spending approach which means we use every cent of our budget to make more money and focus on net present value.We have a small budget of 8.9 million dollars at the beginning of each round of simulation, and the rest of the budget of each year can save to the next year. In first several rounds, we took the conservative approach idea. It can help us familiar with how to run the simulation and can help us to control that limited budget as well. In addition, only using the low to medium project can help the company avoiding from the future because we do not want to put the company's future in a high risk position. Round 1

We are going to analysis the round that was using the conservative approach. In this round, the projects I selected for the year one (2009) are: Toddler Doll Accessory Line and New Doll Film/DVD. According to the report, the Toddler Doll Accessory Line of accessories performed in line with expectations regarding both sales and costs. We have learned from the article, the New Heritage Doll Company’s production division wants to product more product that forcing on toddlers so we think choosing this project is a good choice for the company. Also this project is a low risk project with 7.70% project discount rate. We think we should better keep this project because it is a risk low project with positive NPV (7.15) and a good IRR (25.06%). The New Doll Film/DVD project is a licensing project and according to the report that the film was released on schedule and the marketing promotion was very successful. Otherwise, the sales of DVD was better than previous films. This project is a medium risk project and the company discount rate for this project is 7.40%. This project also produce a positive NPV which is 9.37 and with an IRR of 238.61% which was extremely high. However the payback index is negative which is -3.84 but we think since its payback period is shout which is only 1.43 years so we will still keep this project. As we can see from the table one, at the end of 2010, the revenue of production division is 128.75 million. The revenue is higher than the production revenue of 2009 which was 125 million. And the revenue from licensing division at the end of 2010 is also higher than it in 2009 which is 25.48 million, 0.98 million higher than it was in 2009. However, in both of these two divisions their Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) is slightly lower than 2009 and the net income is also a little lower too. We will put more details to see if these projects are actually work. < Insert table 1>

In year two (2010), the projects which I have chosen are: Warehouse Facility Consolidation, Expansion of Mail-order Catalog Business to Asia and Retail Store Expansion in Northeast. The Warehouse Facility Consolidation project is aim to improve the NH’s warehouse facilities and can save the company’s operating costs as well as increase the shipping speed. This project is in retail division with an NPV of 2.29, an IRR of 13.56%, and a payback period of 8.23 years and a payback index of 0.31. Also, this project was considered as a medium risk project with 9.25% discount rate. Expansion of Mail-order Catalog Business to Asia...
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