New Heritage Doll Company: Capital Budgeting Essay

The New Heritage Doll Companys Vice-President of Production, Emily Harris, had to decide which of two proposals she should approve for the companys upcoming groovy budgeting meetings. The number one go steady involved expanding an existing Match My Doll change state line, which had a proven record of success in the past. The second project introduced a new initiative called Design Your Own Doll, which use a web-based software enabling users to customize a dolls features to the customers specifications. To help Emily reach her decision, I will calculate the Net flummox Value (NPV) of both projects to find out which project is more profitable.In the financial analysis of both projects Emily was given the following assumptions1. Operating projections were utilise to develop property flow forecasts and then to calculate Net exhibit Value, Internal Rates of Return, payback period and other investment metrics. The bills flows excluded all financing charges and non-cash items (i.e. depreciation), and were calculated on an after-corporate-tax basis. The New Heritages corporate tax rate was 40%2. Discount rate was lap at 8.4% for medium-risk project3. NPV calculations included a terminal value computed as the value of a perpetuity growing at constant rate. I computed Free Cash Flows (FCF) to find out the actual amount of cash from operations that the company could use in developing its new projects. I calculated the terminal value for 2020 as projected FCF in the first year beyond the projection horizon divided by send packing rate of 8.4% less the perpetuity growth rate, which in this case was 3%. According to my calculations the MMDMs terminal value in 2020 is 16,346,000 and DYODs is 27,486,000.