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Analysis and Recommendations

Finance 3504

Instructions for Heritage Doll Company

(1) The case should be written as an executive memo, containing the following sections:

 Executive Summary

 Introduction

 Analysis and Recommendations

 Conclusion (brief summary)

(2) Note the following:

 The case analysis is done in group.

 The case report should be (1.5 spaced, 12 point font) with up to 8 pages of appendices (graphs, tables, etc.). Please do NOT insert appendices from the case into your report

unless you have added your own calculations to the page.

 Executive Summary should include: o 2 to 3 sentence overview of the firm o Brief statement of the situation/problem o Your recommendation. Include important numbers in the recommendation, but

do not show how they are calculated (the calculations should be in an appendix).

o The executive summary should be about ¾ page to 1 page. The intent is that if an executive read only the executive summary, they should be able to understand the

situation, the problem, and your recommendations, without reading the rest of the


 Introduction: This section should briefly describe the company, the current situation and the issues.

 Analysis and Recommendations: This section is the most important section. This should be the main component (and longest section) of the report. Most importantly, you must

take a position regarding the issues and make specific recommendations on how to

overcome them. Also, make sure you provide support for you recommendations. Use

specific data and/or calculations to provide this support.

 Conclusion: This section should briefly summarize the main conclusion.

(3) Policies on the submission of the case analysis:

 Due Date: 5:30 PM, Nov 28, 2018.

 Please send the completed report along with the Excel files in which you do the

calculations to me via email, one copy per group. No hard copy is accepted. Please do

not send duplicates for the same group.

 Do not forget to put your names and Section Number 004 on the report.

Case Questions:

There are two main questions for this case. Under each main question, there are sub-points that

will help you to reach a conclusion for the main question. All assumptions that are necessary for

calculations are also included.

1. Use the operating projections to compute a NPV for each project. Which project creates

more value?

General Notes:

 Use the Excel file that contains the operating projections to do the computations

 In the Excel file, item “Days Sales Outstanding” is defined as 365/(sales/accounts


 In the Excel file, item “Days Payable Outstanding” is defined as 365/[(operating

expenses-depreciation)/accounts payable]

 In the Excel item “Selling, General & Administrative” is equal to the up-front R&D

and marketing expenses given in Table 2 and Table 3

 Remember to use the information presented in Tables 2 and 3

 Remember to include the expenses for the development personnel for the project

“Design Your Own Doll”


 For each project, the CFFA is assumed to grow at 3% forever since the year 2021

 For the project “Match My Doll Clothing”, the discount rate is assumed to be 8.4%

 For the project “Design Your Own Doll”, the discount rate is assumed to be 9%

2. Compute IRR, payback period, and profitability index for each project. How should

these metrics affect the CEO’s decision? How do they compare to NPV as tools for

evaluating projects?

 Calculate each metric and briefly discuss the issues specified in this question.