Case

1. The FCF pattern over the 10 year period

There is more cumulative FCF for Match that for DYOD, this is due to the fact that there is more capex for DYOD.DYOD has a longer payback period and lesser PI which makes it a more risky project.

2. Sensitivity of NPV to:

Growth rate in sales

If we decrease by 1/8 for DYOD npv becomes 3496 (51% reduction), for mmdc npv becomes 4608 or 36% reduction

Discount rate

MMDC’s NPV falls at a much lower rate with an increase in discount rate (1/8th increase) 40% for DYOD vs. 27% for MMDC

Fixed costs

For MMDC NPV becomes 6873 (4% decrease) and IRR 23.53

For DYOD NPV becomes 6356(10% decrease) and IRR 17.14

Unit variable costs

5% increase in VC makes NPV 4,163 for MMDC IRR 18.81 (40% decrease) from 7160 and 24% for MMDC

5% increase in VC makes NPV 2454 and IRR 12.68 for DYOD from 7063 and 17.90(65% decrease)

Working capital assumptions

100% increase in cash balance requirement

MMDC decreases NPV by 8%

DYDO decreases NPV by 14%

25% increase in days sales outstanding

MMDC decreases NPV by 11%

DYDO decreases NPV by 18%

Capex

Requires significant capex only for 2 years whereas DYOD has large capex for 4 year. Payback period is much sooner for MMDC

5% increase for DYOD (12.5% decrease)

% % increase for MMDC (6% decrease)

3. Identify the key value drivers for the 2 projects

Cost and production expenses are controlled by the company and hence can have maximum impact in producing value, the environmental uncertainly in this factor is lesser compared to other factors.

4. Qualitative differences in the nature of the 2 projects

The theoretical reason behind “Match My Doll Clothing” to be implemented by the Company Budgeting Committee is that;

(a) The products produced do fully match all season clothing for the young girls and their preferred doll;

(b)Popularity of the Company’s product

(c) It was the best time for the expansion due to its popularity

(d)More in fit with company’s vision of...