New Heritage Doll Company: Capital Budgeting Harvard Case Solution & Analysis

The retailer and manufacturer of the specialty doll products, New Heritage Doll Company, has to decide about the next capital budgeting investment project and the vice president of the production division, Ms. Harris has been tasked with the analysis and recommendation for one of the two projects to invest in. Both the projects have the potential to drive the growth and the innovative potential of the product lines however, Match My Clothing Line (MMDC) project tends to have low fixed costs and moderate risk and the products line as already proven to be successful in the market.
However, the Design Your Own Doll (DYOD) project is new project where dolls would be designed based on customer preferences and needs. However, the fixed costs and risk is high in this project and the demand is unknown for this line of products. Given the range of qualitative factors and the NPV, IRR, PI and Payback of the two products, Harris should recommend to invest in the MMDC project as it yields higher value for the investors and sponsors of the company.
Business Cases for MMDC and DYOD (Question 1)
Both the opportunities look compelling for the management of the company for driving the future growth. First, the business case for investing in the MMDC project is as follows:
This product of the company is highly popular in the market.
The products that would be produced under this project fully matches the seasoned clothing for the girls and also for their preferred dolls.
New Heritage Doll Company Capital Budgeting Harvard Case Solution & Analysis

The risk for this project is moderate.
Due to the popularity of the product, this is the best time for the expansion of this line of product.
The brand awareness is already high in the market and it shows that company would not face problems in selling this product to the customers.
The business case for Design your own doll is as follows:
Customized dolls could be manufactured for the first time based on the preferences and tastes of the young girls that wanted their dolls to be like them.
The correlation of the products of the company with the consumers would be high.
The company would gain permanent customer loyalty.
A continued selling proposition would be commanded by the dolls.
This project has high risk but it also has the potential to strengthen the future growth of the company.
Looking at the business cases of both the products, currently the DYOD project seems to be more attractive opportunity as the company would be trying out something new however, the financial analysis would reveal the final decision based on the capital budgeting of both the products.
Net Present Value Analysis of Projects (Question 2)
Since, the risk associated with MMDC project is moderate and DYOD is high therefore, the discount rates that we have used for both the projects are 8.4% and 9% respectively. The terminal growth rate has been taken to be 3% using a conservative assumption.................

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