Financial Management

GMBA Program
Case Instructions and Questions
PENG XU

New Heritage Doll Company

Instructions:
• The cases are handed in by groups of 5 students.
• Reports must be delivered electronically to xup@essec.edu in PowerPoint or PDF format.
• The deadline for case delivery is one hour before the class in which the case discussion is
due.
• Originality of thinking and clear, professional reports will be rewarded. The first page of
the report should be an executive summary of the analysis and the recommendations
proposed by the students. The remainder of the text should be no more than 15
PowerPoint slides. Tables, figures, graphs etc. that support the analysis can be added
without limit.
• Each case will be discussed on the class their delivery is due. A group of students may be
randomly selected to present their work on the case, so all groups are expected to be
ready to present their report. The presentation counts towards the grade.
• WARNING: copying and/or plagiarism from any source without acknowledgement are
not tolerated and are penalized severely.

Questions:
1. Set forth and compare the business cases for each of the two projections under
consideration by Emily Harris. Which do you regard as more compelling?
2. Use the operating projections for each project to compute a net present value (NPV) for
each. Which project creates more value? (Don’t forget about the cash flows after year
2020.)
Note: an excel spreadsheet is provided on the course website.
3. Compute the internal rate of return (IRR) and payback period for each project. How
should these metrics affect Harris’s deliberations? How do they compare to NPV as tools
for evaluating projects? When and how would you use each?
Note: In excel, “IRR” function or “Solver” can be used to compute IRR.
4. What additional information does Harris need to complete her analyses and compare the
two projects? What specific questions should she ask each of the project sponsors?
5. If Harris is forced to recommend one project over the other, which should she
recommend? Why?
 Financial Management
GMBA Program
Case Instructions and Questions
PENG XU

Note:
In the spreadsheet of the case,
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑎𝑠ℎ
𝐶𝑎𝑠ℎ 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 𝑎𝑠 % 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝐷𝑎𝑦𝑠 𝑆𝑎𝑙𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 = × 365
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐸𝑛𝑑 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
𝐷𝑎𝑦𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 = × 365
𝑇𝑜𝑡𝑎𝑙 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 − 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛

These are used to calculate the operating cash, account receivable, inventory, and account
payable of each year.