Case Study
“Great Eastern Toys”

Designer Dolls’ Project – How to evaluate?

Within the scope of Finance course, we are asked to apply our acquired knowledge in the analysis of the case study “Great Eastern Toys”, in order to build a solid decision concerning whether a new project should be taken or not by this firm.

As a brief explanation, Great Eastern Toys firm is planning to extend its existing product line of plastic dolls by entering the market for designer dolls. Several studies were undertaken in order to estimate future cash flows of this project.
After this step, the firm has to evaluate the project based on the information given by those studies. If so, which path should the firm follow as a means to reach a conclusion of …show more content…

All these cash flows are incremental and, consequently, relevant for these calculations. Both raw material costs and overhead costs are variable, whether energy and labour are fixed costs per moth.
Overhead costs include all costs that are not directly relationated to the production costs, like administrative costs, accounting costs, etc. Nevertheless, we decided to impute overhead costs to operating costs because they represent a variable flow and so, it would not make sense adding them like cash buffer to the Net Working Capital, which is a variable stock.
Operating Costs cash flows for each year were calculated using the following formula:

• Operating Costs=(Yearly dolls production*Raw materials unit cost)+ Yearly energy costs+ Yearly direct labor costs+ Overhead costs=
=(3.000*12*95)+(30.000*12)+(100.000*12)+(0,01*10.800.000)
=3.420.000+360.000+1.200.000+108.000=
=5.088.000

We have