Presented with qualitative and quantitative information regarding two projects, Match My Doll Clothing and Design Your Own Doll. A supplemental worksheet has been provide by your finance department with completed discounted cash flow models for each project.As the analyst assigned to their project you are asked to making a recommendation as to which project should be accepted. The decision should consider both quantitative and qualitative data. This is not a purely financial decision.

The memo should include the following:

• Brief description of both projects of not more than two or three sentences each.
• Analysis of qualitative factors involved in this case.
• A critique of the assumptions and estimates used in the quantitative analysis, and any recommendations for revision to these assumptions and estimates.
• An analysis of the results for the two projects including Net Present Value, Internal Rate of Return, Payback period and Profitability Index.
• A recommendation of which project should be selected.Only one project can be recommended. You can recommend to reject both projects if the analysis supports that decision.

This is a finance case study, so therefore the bulk of your analysis should be quantitative in nature. However, there must be some qualitative factors included in your analysis that supports yourdecision.

The memo should be written in a professional style that suitable the work place.. The use of headers, bullets and tables are encouraged. The memo should be concise.Do not restate the facts of the case, other than the brief description of the projects. There is no need for references as all of the information needed is in the case. This not a research project. It is an assignment intended to apply the concepts and tools you have studied.

New Heritage Doll Company: Capital Budgeting Teaching Note TN Exhibit 1 NPV Analysis for Match My Doll Clothing Line Extension 2010 Revenue Revenue Growth 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4,500 6,860 8,409 9,082 9,808 10,593 11,440 12,355 13,344 14,411 NA 52.4% 22.6% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Production Costs Fixed Production Expense (excl depreciation) Variable Production Costs Depreciation 575 575 587 598 610 622 635 648 660 674 2,035 3,404 4,291 4,669 5,078 5,521 6,000 6,519 7,079 7,685 152 152 152 152 164 178 192 207 224 242 0 2,762 4,131 5,029 5,419 5,853 6,321 6,827 7,373 7,963 8,600 Selling, General & Administrative 1,250 1,155 1,735 2,102 2,270 2,452 2,648 2,860 3,089 3,336 3,603 Total Operating Expenses 1,250 3,917 5,866 7,132 7,690 8,305 8,969 9,687 10,462 11,299 12,203 Total Production Costs Operating Profit 583 994 1,277 1,392 1,503 1,623 1,753 1,893 2,045 2,209 Operating Profit/Sales (1,250) 0.130 0.145 0.152 0.153 0.153 0.153 0.153 0.153 0.153 0.153 SG&A/Sales 0.257 0.253 0.250 0.250 0.250 0.250 0.250 0.250 0.250 0.250 Working Capital Assumptions: Minimum Cash Balance as % of Sales NA 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Days Sales Outstanding NA 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x Inventory Turnover (prod. cost/ending inv.) NA 7.7x 8.3x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x Days Payable Outstanding (based on tot. op. exp.) 0.0x 30.8x 30.9x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x 31.0x Capital Expenditures 1,470 Growth in capex Net Working Capital Accounts Cash Accounts Receivable Inventory Accounts Payable Net Working Capital DNWC NWC/Sales 2010 800 952 152 152 334 361 389 421 454 491 530 -35.2% -84.0% 0.0% 119.3% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 2011 135 729 360 317 907 107 0.202 2012 206 1112 500 484 1334 427 0.195 2013 252 1363 396 593 1418 84 0.169 2014 272 1472 427 640 1531 113 0.169 2015 294 1590 461 692 1653 122 0.169 2016 318 1717 498 747 1786 132 0.169 2017 343 1855 538 807 1929 143 0.169 2018 371 2003 581 871 2083 154 0.169 2019 400 2163 627 941 2250 167 0.169 2020 432 2336 677 1016 2429 180 0.169 2011 350 2012 596 2013 766 2014 835 2015 902 2016 974 2017 1,052 2018 1,136 2019 1,227 2020 1,325 NPV Analysis Free Cash Flows EBIT(1-t) 2010 (750) plus depreciation less DNWC less capital expenditures Free Cash Flow Terminal value 0 (750) 152 (107) (952) (557) 152 (427) (152) 169 152 (84) (152) 682 152 (113) (334) 541 164 (122) (361) 583 178 (132) (389) 630 192 (143) (421) 680 207 (154) (454) 735 224 (167) (491) 793 3.00% 16,345 Initial Outlays Net working capital Net property, plant & equipment Discount factor 8.40% Present value Net Present Value NPV without Terminal Value 242 (180) (530) 857 (800) (1470) $ $ 1.0000 (3,020) 7,150 (146) 0.9225 (514) 0.8510 144 0.7851 536 0.7242 392 0.6681 390 0.6163 388 0.5686 387 0.5245 385 0.4839 384 0.4464 7679 2010 (3,020) 24.0% 2011 (557) 2012 169 2013 682 2014 541 2015 583 2016 630 2017 680 2018 735 2019 793 2020 17,202 2010 (3,020) (3,020) 2011 (557) (3,577) 2012 169 (3,408) 2013 682 (2,726) 2014 541 (2,185) 2015 583 (1,602) 2016 630 (972) 2017 680 (291) 2018 735 443 7.40 years 2019 793 2020 17,202 IRR Analysis Cash Flows IRR Payback Analysis Cash flows Cumulative cash flow Payback period 5-year Cumulative EBITDA $ Profitability Index NPV/Initial Investment 2.37 6,522 New Heritage Doll Company: Capital Budgeting Teaching Note TN Exhibit 2 NPV Analyss for Design Your Own Doll 2010 Revenue 2011 2012 0 Revenue Growth 2013 2014 2015 2016 2017 2018 2019 2020 6,000 14,360 20,222 21,435 22,721 24,084 25,529 27,061 28,685 NA 139.3% 40.8% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 1,650 1,683 1,717 1,751 1,786 1,822 1,858 1,895 1,933 Production Costs Fixed Production Expense (excl depreciation) 0 Additional development costs (IT personnel) 435 Variable Production Costs 0 2,250 7,651 11,427 12,182 12,983 13,833 14,736 15,694 16,712 Depreciation 0 310 310 310 436 462 490 520 551 584 Total Production Costs 0 435 4,210 9,644 13,454 14,369 15,231 16,145 17,113 18,140 19,229 Selling, General & Administrative 1,201 0 1,240 2,922 4,044 4,287 4,544 4,817 5,106 5,412 5,737 Total Operating Expenses 1,201 435 5,450 12,566 17,498 18,656 19,775 20,962 22,219 23,553 24,966 (1,201) (435) 550 1,794 2,724 2,779 2,946 3,123 3,310 3,508 3,719 Operating Profit/Sales 0.092 0.125 0.135 0.130 0.130 0.130 0.130 0.130 0.130 SG&A/Sales 0.207 0.203 0.200 0.200 0.200 0.200 0.200 0.200 0.200 Operating Profit Working Capital Assumptions: Minimum Cash Balance as % of Sales NA NA 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Days Sales Outstanding NA NA 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x 59.2x Inventory Turnover (prod. cost/ending inv.) NA NA 12.2x 12.3x 12.6x 12.7x 12.7x 12.7x 12.7x 12.7x 12.7x Days Payable Outstanding (based on tot. op. exp.) NA NA 33.7x 33.8x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 33.9x 4,610 0 310 310 2,192 826 875 928 983 1,043 1,105 0% 608% -62% 6% 6% 6% 6% 6% Capital Expenditures Growth in capex Net Working Capital Accounts 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 180 431 607 643 682 723 766 812 861 Accounts Receivable 973 2328 3278 3475 3683 3904 4139 4387 4650 Inventory 346 786 1065 1130 1197 1269 1345 1426 1512 Cash 2010 Accounts Payable 474 1135 1598 1694 1796 1904 2018 2139 2267 Net Working Capital 1,000 1,024 2,410 3,352 3,553 3,766 3,992 4,232 4,486 4,755 DNWC 1,000 24 1,386 942 202 213 226 240 254 269 NWC/Sales 0.171 0.168 0.166 0.166 0.166 0.166 0.166 0.166 0.166 NPV Analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (721) (261) 330 1,077 1,634 1,667 1,767 1,874 1,986 2,105 2,231 Free Cash Flows EBIT(1-t) plus depreciation less DNWC 0 310 310 310 436 462 490 520 551 584 (1,000) (24) (1,386) (942) (202) (213) (226) (240) (254) (269) (1,105) less capital expenditures (4,610) 0 (310) (310) (2,192) (826) (875) (928) (983) (1,043) Free Cash Flow (5,331) (1,261) 306 (309) (1,190) 1,076 1,141 1,210 1,283 1,359 Terminal value 3.00% Discount factor 9.00% 1,441 24,737 Present value 1.000 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 0.5019 0.4604 0.4224 (5,331) (1,157) 258 (239) (843) 700 681 662 644 626 11,058 2010 (5,331) 17.9% 2011 (1,261) 2012 306 2013 (309) 2014 (1,190) 2015 1,076 2016 1,141 2017 1,210 2018 1,283 2019 1,359 2020 26,178 2010 (5,331) (5,331) 2011 (1,261) (6,592) 2012 306 (6,286) 2013 (309) (6,595) 2014 (1,190) (7,784) 2015 1,076 (6,708) 2016 1,141 (5,566) 2017 1,210 (4,357) 2018 1,283 (3,074) 2019 1,359 (1,715) 2020 26,178 24,464 >10 years Net Present Value $ 7,058 NPV without Terminal Value $ (3,391) IRR Analysis Cash Flows IRR Payback Analysis Cash flows Cumulative cash flow Payback period 5-year Cumulative EBITDA $ Profitability Index NPV/Initial Investment 1.32 8,778