Case scenario: New Heritage Doll Company
Apply the metrics and information in the case study to make a recommendation about which of the two projects to accept.
Give the Heritage Doll Company Case a quick read to understand what the issue is - which of the two proposed projects to accept - and to look at the format of the two case exhibits (format is the same for both) which forecast the cash flows for the two projects.
New Heritage Doll Company: Capital Budgeting By Timothy Luehrman and Heide Abelli
Q1. Explain the significance of the change in k-wacc to the capital budgeting analysis and recommendation.
Q2.
A) Explain how the table below works, i.e., what are the inputs, what are the outputs, and how are the inputs transformed into the outputs.
B) Row 28 is changed in row 41 below. Explain how the investment in working capital changes (compared to the amount in Q2a) and why.
C) B57 and B58 are changed from the number of days in Q2a and Q2b. Explain how the investment in working capital changes (compared to the amount in Q2b) and why.
Q3.
A) Using the data below for the three projects, and the formulas you discerned in B15, B16, and B17, calculate NPV, PI, and IRR for the three projects, using two different k-wacc discount rates, 8% and 11%.
B) Interpret the meaning of the calculations you made in (A).