Hbr Finance Simulation: Capital Budgeting Report

Quy Nguyen - HBR Finance Simulation: Capital Budgeting Report

In the first attempt, I was focusing on selecting the project has positive NPV and highest profit index. Beside that I selected the project that accounted for lower portion of budget. I believed that the projected investment which has the positive NPV and the project with the higher profit index will be the best supports to convince the company to go for it, because it has its potential return in investment. Firstly, in 2009, the project of Retail Store Expansion in Northeast has launched successfully and got more revenue than expected. This project showed the profitability right away. And the New Doll Film/DVD and Toddler Doll Accessory Line accounted for lower portion of budget but launched successfully and got the higher sale revenue. I kept continuing to focus on the profit index and the higher NPV to make decisions for 2010, 2011, 2012, and 2013. In 2013, among 6 selected project has been launching, there were Dollhouses with Miniature Dolls and Cable TV program had higher revenue but accompany with the higher product cost that result the lower operating margin. The others project left brought both revenues and profits for the company. The Company APV for 2014 in the first attempt is 632.72

In the second attempt, I was focusing on selecting the project with positive NPV, higher profit index and positive in 5 years EBITDA. The reason I started focusing on 5 years EBITDA is a company’s operating performance. The better operating performance the higher the profit that the company can get. There are some typical selected projects for improving company APV of 2012 such as the Acquisition of Electronic Toy Manufacture with 27.56 NPV, 0.41 in profit index and 36.33 in 5 years EBITDA, ‘Matching My Doll” Clothing Line, Expansion Concept with 8.31 in NPV. 2.75 in profit index and 3.68 in 5 years EBITDA. For the next year, among my selections, there were a project named Virtual Doll Community which has a good combination of 6.89 in NPV, 306.10 in profit index and 5.19 in 5 years EBITDA and a project of Bookstore Café and Writers’ Club with 6.71 in NPV, 13.42 in profit index and 3.62 in 5 years EBITDA. Therefore, the company APV was increasing from 449.33 in 2012 to 571.78 in 2013. Then I tried to improve the business by the new selections which again focus on the NPV, profit index and 5 years EBITDA. Among these selection, there were 2 highlight selections such the Toddlers Music CD Series with 6.97 in NPV, 23.23 in profit index and 1.77 in 5 years EBITDA, and the project named Young Authors Book Series with 8.15 in NPV, 21.57 in profit index and 2.0 in 5 years EBITDA. Then finally the company APV increased to 642.98 in 2014. This is the highest company APV that I got in 3 attempts

In the last attempt, I started focusing on narrowing the selections and did not spend all the budget constraint. Besides that, I avoided selecting the project has negative 1 yeas EBITDA even it has the positive in 5 years EBITDA and considering about the payback years. Therefore, I did not select the projects has the higher EBITDA and profit index. I made the decision of acquisition of Children’s Magazine instead of the acquisition of Electronic Toy Manufacturer which will attract more customers and has 27.56 in NPV and 36.33 in 5 years EBITDA. In 2013, I selected Young Authors Book Series, Dollhouses with Miniature Dolls, Children’s Accessories Line which were successful in both revenue and profit, however, it caused the higher cost. I also selected to launch the project named Design Your Own Doll, this is the wrong decision because the company were not sufficient to get the assembly equipment and software. It caused the lost in revenue. I did not consider these facts from the beginning which led to the decreasing in the company APV compared to the other two attempts. The company APV at that point is just 586.52.

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