Macc

Basic information comparison

Match My Doll Clothing line (MMDC) is an expansion project which creates an all season collection of dolls and children’s clothing, while Design Your Own Doll line (DYOD) makes innovation to employ web-based software to allow customers to customize the doll. MMDC is more compelling. First, as MMDCL was an existing successful line, the worst situation can still maintain premium prices due to its popularity. In addition, capacity utilization can be maximized by taking advantage of off-peak discounts. What’s more, MMDCL is available for a wide range of ages form girls to women which doesn’t require technical skills to learn how to use online “proprietary design software.”

The project DYOD seemed to be more risk and revealed more uncertainty. Since it needed a certain degree of customization, it made the manufacturing process more complicated. Besides, the project’s target market was limited on a small group of customers; the low production makes the fixed costs per unit to be very high. The research and development section will cost another large amount of expenditures. In order to choose which project is the most suitable, it is not only needed to compare the basic information but also to analysis the financial budget decision which depends on four main factors, NPV, IRR , PPR and sensitivity analysis.

NPV

We can compute a net present value for each project to decide which project creates more value. First, we need to figure out the initial cash outflow of each project. Table 1 and table 2 illustrate the initial cash outflows of MMDCL and DYOD separately. As the upfront R&D and marketing are tax deductible and the tax rate is 40%, the initial expenditures are $3.02 million and $5.331 millions. Next step is to calculate the unlevered cash flows of each year. As the result 9.2 (p.310) illustrates, unlevered cash flow = profit before interest and taxes + depreciation and amortization – change in working capital – capital expenditures +...