Please read Harvard Business Case titled "New Heritage Doll Company" and answer the questions below.

Summary of the case:New Heritage Doll Company is a mid-sized, privately owned U.S. doll manu- facturing and retailing company faced with two investment proposals aimed strengthening innovative product lines and driving future growth. One is a "Match My Doll" clothing line expansion, which involves relatively large outlays for R&D, market research, and marketing to maximize the probability of quick acceptance and longer-term success for the follow-on line. The other is "Design Your Own Doll", which would involve significant modifications to its existing technology infrastructure, expansion of its web hosting capacity, and modification of the terms of its third-party service agreements. Due to constraints on financial and managerial resources, the firm's capital budgeting committee would be likely to decline to approve both projects.

Note: You may find it useful to download the excel supplement which comes for free with this case. Also, for all of your analysis, please ignore cash-flows coming from working capital.

a) Estimate the incremental cashflows for both, MMDC and DYOD projects for the years 2010-2020.

b) Using information from the case about the cash-flow risk in for each of the projects (and suggested discount rates) and assuming that cash-flows after year 2020 will be growing at 3%, compute the NPV for each project. Which project should New Heritage Doll Company Invest in?

c) You are worried that the estimated level of risk of the project you chose in part b) is wrong. Analyze how your selection of the project would change if risk in the project you selected in part b) is different. (Use discount rates from the case for different levels of risk)

d) You are also worried that you may be too optimistic about the growth rate of cash flows after 2020. Analyze how your selection of the project would change if the growth rate in the post-2020 cash flows the project you selected in part b) is different.