New Heritage Doll Company
Executive Summary New Heritage Doll Company’s production division has two serious proposals that will be presented to the capital budget committee. The first proposal, named Match My Doll Clothing Line extension, will add year round seasonal clothing to Heritage’s product line. This proposal’s NPV was $7,326.11. The IRR was 24.10% and the MIRR was 20.68%. The Profitability Index was 3.08 and the payback period was 7.11 years. The value of the tax shield is $647,000.
The second proposal, called Design Your Own Doll, is a new product line related to the heirloom line. It is one that will allow customers to customize the looks of the dolls they purchase through the New Heritage …show more content…
Working capital for the subsequent years was based largely on recent historical experience with the original Match My Doll Clothing Line. Lastly, Harris believed the project to have a moderate risk.
The project for Design Your Own Doll targeted existing New Heritage customers. The customization process would begin with a new section of New Heritage’s website, where proprietary design software enabled the customer to select physical attributes of the doll such as hair color, hair length & style, skin color, eye shape, eye color, and other facial features. However, even with a small amount of customization lead to larger amounts of manufacturing expense. With low production runs and volume, fixed costs on a per-unit-basis were expected to be fairly high. Furthermore, the breakeven volume for the project was also expected to high.
The web-based software tools and order entry system require the company to make significant modifications to its existing technology infrastructure, expand is webhosting capacity, and modify the terms of its third-party service agreements to ensure a higher level of service quality. Initial expenditures, which occurred over a two-year period, are of the following ($ thousands): Upfront R&D - $841, Upfront Marketing - $360, Property, Plant & Equipment - $4,610, and Investment in Working Capital (occurred in second year, 2011) - $1,000. As with the