Assignment – 1 | The Heritage Doll Company | Group – 4 | Section – G

Ankita ABM16054 | Anoushka PGP35312 | Neeraj PGP35328 |

Nidhi PGP35329 | Niharika PGP35330 | Parth PGP35332 | Vishal PGP35348

KPIs for the two options are shown below:

Evaluation Particulars MMDC DYOD
NPV (in thousands) $ 7,121 $ 7,000
NPV (without terminal value) ( in thousands) $ (188) $ (3472)
IRR 23.40% 17.60%
Simple Payback 8.07 yrs 9.06 yrs
Discounted Payback 9.08 yrs 9.37 yrs
Profitability Index (PI) 3.02 1.98

Financials: As we can see above, the two projects have almost equal NPVs with MMDC option
having a small advantage over DOYD option. Going with NPV solely would be incorrect in this
case as there is uncertainty associated with the cash flows and terminal value.
NPV without terminal is negative for both the projects but here project MMDC is better than
project DYOD. Exclusion of terminal value can also create a bias towards a project with earlier
cash flows. As the project MMDC has better IRR, it is clearly a better project in terms of returns
with equally scaled projects. The payback period of MMDC is less than that of DOYD, which
again shows that the former is a better project. PI of MMDC is also greater than DOYD.
Thus, from a financial perspective, the MMDC option clearly outranks DOYD provide greater
returns on all metrics, viz. NPV, IRR, PI and payback period.
However, we observe that excluding the terminal value results in NPV of both options becoming
negative. Since the terminal value depends on a perpetual 3% growth rate (starting from a
period 10 years from the current date), it is fraught with greater risk than the preceding cash
flows.

Non - financials: DYOD has high risks as it requires more initial investment, requires new
technology that has never been tested before and also requires behavioral change in customers
while MMDC is simply an expansion of existing operations.

Therefore, the MMDC option ranks better than DYOD on both financial and non-financial
perspectives.