The New Heritage Doll Case

Individual Assignment 1

(The New Heritage Doll Case)

Friday, October 26th 2012

New Heritage Doll Company

To: Emily Harris

Re: Proposal Recommendations

Based on my financial analysis of the two proposals, I suggest we recommend “Match My Doll Cloth Line” project over “Design Your Own Doll” project. The “Match My Doll Cloth Line” expansion will be a safer and more profitable investment for New Heritage.

A forecast of cash flow for the next 10 years was developed for both projects. It is found that NPV for the two projects are very close, with Matching My Doll Cloth Line’s at $7,648 and Design Your Own Doll’s at $7,996. However, the Matching My Doll Cloth Line expansion has a higher IRR (20%) compared to Design Your Own Doll (15%). It requires significant less capital expenditure initially ($1,470K vs. 4,610K) and over the next ten years. It also has a less payback period (~6 years vs. ~9 years). The cash flow forecast model for the Matching My Doll Cloth Line project assumed 8.4% discount rate. This project is less risky than the Design Your Own Doll project (9% discount rate assumed) because it is less capital intensive and will pay back faster.

There are other factors that are difficult to be evaluated on a numerical basis but nonetheless very important to consider. For example, which project is more consistent with our core value/company brand image? New Heritage Dolls has been focusing on offering “intergenerational experience” for grandmothers, mothers and daughters. The Matching My Doll Cloth Line will enhance our existing customers’ experience by bringing new elements to their cross-generation dolls and increasing the fun that grandmother, mother and daughter can have together during the play time. On the other hand, the “Design Your Own Doll” project won’t be able to offer (maybe even sabotage) the sentimental value that passed down from mother to daughter through the cross-generation dolls. It is obvious that the Matching My Doll...