Capital Budgeting Scenarios

As the CEO of New Heritage Doll Company, complete the following tasks:

1. Run Scenario C at least three times (you can run it as many as you’d like).

2. Prepare a memo to the Capital Budgeting Committee (the memo should be no longer than two pages, single spaced, using Times New Roman 12 point font). In the memo, provide them with what you believe is the most effective decision-making model for making capital investment decisions in New Heritage Doll Company (under Scenario C). This model should provide a framework for choosing capital investments, given financial constraints. Make sure to include sound reasoning for your model and do not simply provide a systematic account of what you did. Instead, provide a general model that could be used by New Heritage Doll Company in any year with any set of project decisions. The purpose of this is to provide a framework that decision makers could use for capital budgeting.

3. Also in your memo, provide the Capital Budgeting Committee with the top three lessons that you believe were gained from this exercise. What shortcomings does this simulation have?

Make sure it is written as a business memo, it is clear of grammatical/spelling errors, and that it answers all the above questions in a succinct manner.

Scenario C: Budget as follows:

 

Year 1	$0 + 25% of EBITDA
Year 2	$0 + 15% of EBITDA
Year 3	$0 + 10% of EBITDA
Year 4	$0 + 10% of EBITDA
Year 5	$0 + 10% of EBITDA

 

Note: 15% of unused budget carries forward.