Capital Budgeting Of New Heritage Doll Company †Free Samples

The report is about New Heritage Doll Company which started its operations in the year 1985. The company has three segments i.e. retailing, production and licensing. Among the three the production segment is the most asset rich of all. The sale composition of the company comprised of 75% sales to the retailing segment of the company and the rest 25% came from manufacturing private label goods. Currently the Vice President of the company Emily Harris has been faced with the challenge of evaluating two proposals i.e. Match my Doll Clothing Line Expansion and Design your Own Doll[1]. In order to ascertain which proposal has to be selected Emily has to present her choice coupled with detailed analysis of the reasons for not choosing the other one. This would require assessment of both financial and non-financial aspects of the project’s future performance and profitability. Every project proposal shows some kind of symptoms of failure or problems. These symptoms prove to be the nerves of the future performance appraisal of the project. Careful study of these symptoms can help Emily decide the project that has to put forward for acceptance. The symptoms showed by the two proposals ae as follows: The brand manager Marcy McAdams is hurrying into the implementation and execution of the project. The project also requires huge amount of marketing and R&D outlay which suggests that the project has inherent risk of unacceptance in case it is executed without proper research and development and intensive marketing.  Ã‚  Ã‚   In this proposal the symptoms showed include complete change in the technological outlay of the organisation, webhosting capacity and immense modification will be needed in respect of third party service agreements entered into by the company. The root cause behind the symptoms help in realisation of the challenges in the implementation of the proposed project from the point of view of the profitability and various other factors.   The root causes of the problems of the proposals are as follows: In this case the implementation has to happen very quickly because of the changing trends in the tastes and preferences of the children. The immense marketing has to be undertaken in order to stay ahead of the competitors as this is easier proposal from the point of execution as it doesn’t require heavy capital expenditure in terms of new machinery or technology etc[2]. The company is not fully unaware about the execution of the proposal as it has already been executed in a smaller previously by the company. The reason for the complete change in the technological outlay is because the changes made by the customer as per his desires to the doll are dependent upon how well the software is designed. The webhosting capacity has to be increased as it must be accessible to every customer whenever they want. A large number of customers may log in at the same time which might cause technical problems in the future. This is one of the major and basic requirements of the proposal. This can prove to be a major deterrent in terms of the flexibility of the organisation in response to the changes taking place in the technological field. From the quantitative analysis conducted it is seen that the net present value of the Match my doll proposal is way higher than that of the Design my doll. This objectively suggests the choice to be made in terms of the profitability of the business. The management should proceed with the first proposal[3]. While conducting the quantitative analysis due consideration has been given on the various factors like the working capital requirement of the proposal, the capital expenditure of the project and the projected operating profits from the project in the future. The calculation of NPV, IRR, Payback period and profitability are provided in the Appendix. The decision for the best investment project have been made after factoring in all the relevant calculations. Based on the calculations it can be said that the Match My Doll proposal is the best available option for the company. In order to conduct the qualitative analysis the requirements of both the proposals must be understood objectively. The first proposal requires huge marketing for its success. But, it must be kept in mind that one of the variant of the design my doll is already time tested in the past when it consisted of the some accessories for the warm weather. This shows that the project despite not much requirement for changing the operational structure of the organisation can prove to be successful. On the other hand design my doll requires complete change of the operational structure of the organisation especially in the field of technology used by it[4]. The fixed cost per unit of the products thus produced by the entity will rise along with the complexity of the manufacturing process. The proposal not only requires the company to change its way of operation but also requires it to take the risk of losing its loyal old customers and in addition to that it will be compelled to charge higher pr ice from its customers. It is recommended that the first proposal is accepted due to profitability as well as organisational reasons. The second proposal cannot be selected because its net present value of inflows is significantly lower than the first proposal and also it demands immense amount of organisational change both in the field of capital expenditure and the technological requirement. Almazan, Andres, Zhaohui Chen, and Sheridan Titman. "Firm Investment and Stakeholder Choices: A Top?Down Theory of Capital Budgeting."  The Journal of Finance  (2017). Burns, Richard, and Joe Walker. "Capital budgeting surveys: the future is now." (2015). Chittenden, Francis, and Mohsen Derregia. "Uncertainty, irreversibility and the use of ‘rules of thumb’in capital budgeting."  The British   Accounting Review  47, no. 3 (2015): 225-236. Johnson, Nicole Bastian, and Thomas Pfeiffer. "Capital budgeting and divisional performance measurement."  Foundations and Trends ® in   Accounting 10, no. 1 (2016): 1-100.