New Heritage Doll Company

FINANCE-500 CASE STUDY

 New Heritage Doll Company Overview Ingrid Beckwith founded New Heritage Doll Company in 198! "he company wa# known for producing doll# with a uni$ue #tory line and a whole#ome theme to help kid# develop an imagination% a# well a# learn more a&out the hi#tory of the 'merican culture! "he theme wa# hugely #ucce##ful and &y ())9 New Heritage doll company had a&out *) +mployee# and generated (* million# in revenue and (, million in operating profit#! "hey had - operating divi#ion# namely production% retailing and licen#ing! "he production divi# divi#ion ion manufac manufactur tured ed the doll# doll# and doll# doll# acce##o acce##orie rie#! #! .a/ori .a/ority ty of the manufa manufactu cturin ring g wa# out#ourced to '#ia! "he retailing divi#ion con#i#ted of an online we&#ite% a mail0order paper  catalog catalog and a network of retail retail #tore#! "he profit# generated generated &y the - divi#ion# divi#ion# i# a# #ummaried #ummaried  &elow2 3roduction 4etailing 5icen#ing Operating 4evenue 1( 19) (*! Operating 3rofit# ,!  *!8 1*! 6In .illion#7 In eptem&er ()1)% +mily Harri# wa# con#idering &etween a few pro/ect propo#al# for the upcoming company# &udgeting #e##ion! "here were two main pro/ect# that #tood out &a#ed on their potential to #trengthen the company# innovative pro/ect line# and drive future growth! Howeve Howeverr there there were were #ome #ome concern concern## a&out a&out the &udgeti &udgeting ng con#tr con#train ain## they they would would put on the company and could even re#ult in &oth the propo#al &eing turned down! he had to pick one of  the#e pro/ect# and come up with a compelling ca#e to make the propo#al #tick over other  department#!

Inve#tment opportunitie#2 "he following are the two0inve#tment opportunity availa&le for the New Heritage Doll Company2 Match my doll clothing line expansion: .atch my clothing line con#i#ted of a couple of clothing and acce##orie# for the #ummer! It wa# hugely popular &ecau#e of the cele&rity kid# who were #een wearing them! .arcy .c'dam#% the  &rand manger of the line hoped to ca#h in on it# #ucce## &y e:panding the clothing line to include clothe# and acce##orie# of all #ea#on#! 3ro#2 •

"he method wa# already te#ted and hugely popular! "he new line would &ring in at lea#t

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the #ame profit margin if not more! "here wa# a familiarity with the working of the pro/ect and the company had e:perience

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with the implementation of a part of the pro/ect! ;ould ;ould help reduce the #ea#onality of the New Heritage# earning#!

Con#2

FINANCE-500 CASE STUDY •

Due to the fickle nature of young kid# fa#hion #en#e% the new line had to &e launched

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$uickly and there wa# no time to wa#te!  It wa# al#o a gam&le% a# no one knew how long thi# particular pro/ect would fetch gain# for New Heritage!

"he initial e:pen#e# were e#timated a# follow#2 Initial +:penditure# =pfront 4>D =pfront .arketing Inve#tment in working capital 3roperty% 3lant and +$uipment "a: +:penditure @ )!*A -() "otal


Other detail#2  "he 4>D and marketing e:penditure would &e deducti&le for ta: purpo#e# at *) corporate rate! "he =#eful life of the 3roperty% 3lant and +$uipment wa# a&out 1) year#! Depreciation charge# were &a#ed on the modified accelerated co#t recovery #y#tem allowed &y the I4! "he ri#k level of the pro/ect wa# moderate if not the #ame a# that of the ri#k level involved in the current clothing line! Capital  Tax   Operating Operating   Present  Year Expendit Expenditu  Total Expenses Prot !alue Index ure re "0#0 #"50 #$%0 -#"50   "($0) "#$')&$(& "0## ##55 &5" 5'( "(()" # " '5   *$#5) 5$0&)'0(' "0#" 5'** #5" &&$ (&%)* " * 5%   %%&$) *0(5)*#"( "0#( %#(" #5" #"%% 5#0)' ( ' ("   '5'0) *#0#)"#$0 "0#$ %*&0 (($ #(&" 55*)' $ ' (5   &"*%) *050)%$'& "0#5 '(05 (*# #50( *0#)" 5 " &#   #000% 5&&&)&#%' "0#* '&*& ('& #*"( *$&)" * )" 0*   "'%5) #5'")&%0% "0#% #%5( $"# #%5( %0#)" % " &"   (#0$) #5*&)(%$% "0#' #'&( $5$ #'&( %5%)" ' " ($   #55%)0'$( "0#& "0$5 $&# "0$5 '#' ((5$ & 5(

FINANCE-500 CASE STUDY #0

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 N3@ 3re#ent alue 0 initial inve#tment @ -8)))!))?1*  6*8()7 @ ((#'0)0# Design your own doll: "hi# initiative involved in per#onaliing the doll# according to the cu#tomer# ta#te# and cu#tomiing them to the per#onal data of future owner#! "hi# would attract a lot of current and new owner# to &uy and create a new doll like them!

+liað Holt% manager for heirloom doll# wa# e:tremely e:cited a&out the pro/ect! "he cu#tomer# relation#hip with the doll would increa#e with per#onaliation! .arket re#earch al#o indicated that there wa# a lot of enthu#ia#m for thi# pro/ect among a nice group of cu#tomer# "he initial e:penditure# of the pro/ect wa# e#timated a# follow#2 Initial +:penditure# =pfront 4>D =pfront .arketing Inve#tment in working capital 3roperty% 3lant and +$uipment 'pplication development co#t# "a: +:penditure @ "otal



1))) *?1) *- 811A)!*@ (-(* 1*- 6In "hou#and#7

Pros2 •

;ould help create more #ale# a# thi# wa# a novel concept and the #ale# could &e done to

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new and e:i#ting cu#tomer#! It had a moderate fi:ed co#t ratio! It #erved well for the company# motto of creating a uni$ue e:perience for the cu#tomer#!

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Cons2

FINANCE-500 CASE STUDY •

I" wa# a ri#ky propo#ition! "he company would &e unknown territory for the company and

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a lot of inve#tment would &e re$uired! It would re$uire perfection in e:ecuting the pro/ect otherwi#e it would end up in damaging New Heritage# reputation and it# relation#hip with #ome of the &e#t cu#tomer#

Ca#h flow predicted for the operation

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FINANCE-500 CASE STUDY @ &"#(0)&'$* "he net pre#ent value of the De#ign your own doll i# much higher compared to the net pre#ent value of .ake my doll clothing line! "he return on inve#tment i# con#idera&ly higher for thi#  particular outcome! 'l#o &y reviewing the pro# and con# of the#e pro/ect#% we can conclude that in a longer run% the profit# received &y the de#ign your own doll line i# much higher compared to make my doll clothing line! Appendix2

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