Corporate Financial Management Assessment - Case study
Case Study - New Heritage Doll Company: Capital Budgeting
Overview: You are acting as the CEO of New Heritage Doll company, and you need to decide which investment projects can create value for shareholders' wealth. Your task is to evaluate proposed projects using the financial and qualitative information provided and to select a project to be approved for a given year's investment plan using any evaluation criteria you deem appropriate.
The Case Study is a real-world case study, and one thing can, and perhaps should do, is to consider the analysis using different strategies. In this way, you may try different strategies in order to develop a deeper understanding of how different decisions lead to different outcomes.
Report requirements: Based on the case study, please answer all of the following questions in your report:
1. Using the financial and qualitative information provided in the case, estimate the free cash flow (FCF) of each project from 2010 to 2020.
2. If the growth rate of the free cash flow after 2020 is 3% for both projects, what is the terminal value of Match My Doll Clothing Line Expansion project and what is the terminal value of Design Your Own Doll project?
3. How do you determine the riskiness of the two projects you evaluated? Based on the riskiness of each project, what discount rates are you going to use to compute the net present value?
4. The depreciation is a non-cash charge. Do you need to consider the depreciation in the capital budgeting process? Why? Explain.
5. Use the financial and qualitative information provided, compute the net present value (NPV) for each project?
6. Compute the payback period and profitability index for each project.
7. If you are forced to recommend one project over the other (the two projects are maturely exclusive projects), which one you will choose? Why?
8. What isyour budget constraint and how does it impact your decision?
Formatting instructions: You are encouraged to write your final report in a formal business format for 5-10 pages long with 1.5 lines spacing, 12pt font, and 2.54cm margins.
Attachment:- Assignment Files.rar