New Heritage Doll

The Company should maximize on cash management by capital rationing on the project accepted. NPV of the project should be implemented as it reflects the time value of money invested in the accepted project. Similarly this can be further elaborated by computation of IRR of both project proposal.

NPV analysis uses future cash flows to estimate the value that a project could add to a firm’s shareholders. A company director or shareholders can be clearly provided the present value of a long-term project by this approach. By estimating a project’s NPV, we can see whether the project is profitable. Despite NPV analysis is only based on financial aspects and it ignore non-financial information such as brand loyalty, brand goodwill and other intangible assets, NPV analysis is still the most popular way evaluate a project by companies.

Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.

If there is no capital rationing, project B should be accepted because it has a larger net present value. If there is a capital constraint, the problem then focuses on what can be done with the additional $1,005,000 freed up if project A is chosen. If Caledonia can earn more on project A, plus the project financed with the additional $1,005,000, than it can on project B, then project A and the marginal project should be

The purpose of this analysis is to compare and contrast two projects in terms of Project Management, Quantitative Analysis and Economics while illustrating the

ii-We would like to know how changing the discount rate would affect the NPV of each project. For both projects we have that as the discount rate decreases each project increases in value, and when the discount rate increases both

Each project has a WACC of 8%. Use the replacement chain approach to determine the NPV of the most profitable project.

Once we obtained the UFCF, the terminal value was calculated in three different ways, treating the pipeline as an asset on our books, finding the value of project if cash flows are received for perpetuity an finding the annuity value of cash flows for 30 years by assuming that after 1992 cash

Another fact that to consider is that if the company is looking for the project that pays back its investment the earlier, project Gemini should be selected because it breaks even the quickest. However, if the objective of the project is long-term, project Janus should be considered since it is still viable after three years. Its project lifecycle is 5 years while the project lifecycle for Gemini is 3 years.

In order to determine which of the two projects create more value, we must calculate NPV based on the assumptions relevant to the decision. The table below shows the NPV for the two product lines given discount rates of 7.7% (low risk), 8.4% (medium risk), and 9.0% (high risk). The Match My Doll Clothing line is currently rated as a medium risk project with 8.4% cost of capital. Given Emily’s knowledge of the industry we may be able to accept this; however, the firm should also consider whether children’s clothing lies within their core competencies and how different the market is from their current market for dolls. These factors

the amount of money invested in this topic, the NPV could become negative and in that case, the project will be rejected via the NPV criteria.

2. Compute the NPV of both projects. Which would you recommend? What if they are not mutually exclusive?

3. The NPV method is better because it shows the size of the project so you can see how much value a project has not just a percentage. You could have a higher percentage but a much lower value and you would still go for the lower percentage.

This analysis will determine whether or not the project is worth pursuing using a net present value (NPV) approach.

Mutually exclusive projects are another situation for which NPV must extend its approach. In such projects, the chosen project is usually one which results in the greatest positive NPV because this will produce the greatest addition to shareholders’ wealth. In the case of mutually exclusive investments, ranking becomes crucial as only