Doll Company Assignment Guideline Essay

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Questions 1. Compare the business cases for each of the two projections under considerations by Emily Harris. Qualitatively, which one do you regard as more compelling? 2. Use the operating projections to compute a net present value (NPV) for each project. Which project creates more value? 3. Compute the internal rate of return (IRR) and payback period for each project. How should these metrics affect Harris’s deliberations? How do they compare to NPV as tools for evaluating projects? When and how would you use each? 4. What additional information does Harris need to complete her analyses and compare the two projects? What specific questions should she ask each of the project sponsors? 5. If Harris is forced to recommend only one…show more content…
(Also, try to think what NWC means in our context.) Finally, compute changes in NWC from year to year. d. Finally, compute free cash flow (FCF) for each year from 2010 to 2020. e. In principle, we need to forecast future cash flows through the end of the project. What is left at the end of the project could be sold and recorded as a cash inflow at the end of the project. This inflow is called a salvage value. In this case, however, the project is assumed to last forever, i.e. there is no end date. This is very common when we value any infinitely-lived projects. In order to deal with this situation, we make an additional assumption that after some point in the future (say, 2020 for MMDC in this case), the project will become mature and it will grow at a constant rate forever. With this assumption, we can calculate the value of the MMDC project in 2020. This is called the terminal value. In other words, the terminal value represents the value, at the end of the explicit forecast period, of all cash flows occurring after that point. Assume that from 2020 onward, FCF for MMDC will grow at 3% per year. (Justify my assumption of this growth rate. Do you agree or disagree with this assumption? Why?) The terminal value, i.e. the

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