Statement of the Problem

Emily Harris, Vice President of New Heritage Doll Companys

(NHDC) production division, is faced with a capital budgeting
decision in mid-September of 2010. The company wants to
allocate the resources to strengthen its innovative product
lines as well as drive future growth and profits. She must
decide between two proposals, the Match My Doll Clothing
(MMDC) expansion of a current line and the product
introduction of the Design Your Own Doll (DYOD) line. She
hopes to use her team to analyze both the quantitative and
qualitative factors of each proposal to determine which one
she should present in the companys budgeting meeting.

Discussion
Harris is faced with the dilemma of picking one out of two
alternatives to propose, and there are a certain key metrics
that must be analyzed in order to accurately determine the
long term impact of either proposal. Its crucial to
understand these metrics before applying them to either

proposal; the factors being Net Present Value, Internal Rate

of Return, Payback and Profitability. Net Present Value
discounts future cash flows to one value, and if that value is
above 0, the project should be considered. This analysis
takes into consideration the time value of money, allowing
for the analysis to be more in depth and accurate; however,
this method does not calculate when the NPV will be
positive and the model assumes that resources are
abundant, something crucial to project implementation. The
Internal Rate of Return, quantifies the return that each
project generates. This method is widely accepted as it
quantifies return by using

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