Mirza Prses
Finance 500 – Individual Case
“New Heritage Doll Company: Capital Budgeting” The New Heritage Doll Company has grown at a substantially fast pace since it was founded in 1985 by Ingrid Beckwith. Through interesting themes and storylines which helped intrigue little girls’ imagination all across the nation, New Heritage has managed to gain a reputable place in the competitive doll market and attain a highly loyal customer base. Emily Harris, the Vice President of New Heritage Doll Company’s production division, was recently presented with two projects that grabbed her attention far more than any others. This came a result of each project’s prospective nature and potential to assist the company in its aspirations for further growth.
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An expansion of the current line was proposed, which included a collection for all four seasons. This presented potential increases in sales for other seasons rather than continuing the current focus on specifically winter holiday period. In addition, premium prices of the dolls could be continued and off-peak discounts from various suppliers could be achieved. On the other hand, the second project was a completely new initiative called Design Your Own Doll. Market research showed that girls wanted dolls that look like them and this project presented that idea’s reality. It would be a completely new approach to a young girl’s heart, which could in return increase customer loyalty while also producing an additional premium to the price.
When determining which project the company should approve, I used NPV (Net Present Value) as my primary tool. A project’s financial viability can be determined by whether or not the NPV of the specific project is positive. Net present value is considered a project’s net contribution to wealth or present value minus the initial investment. Therefore, when positive, this means the project is generating shareholder wealth.