In this third milestone assignment for the final project, you will continue your analysis of the New Heritage Doll Company. Assuming the role of Emily
Harris, the firm’s financial analyst, your next step in the process is to perform a risk assessment of the two capital budgeting projects being considered. As we are
learning, risk can be identified and quantified, and this is a crucial step in the evaluation of any capital investment project. For this project involving the New
Heritage Doll Company, we will focus on the relevant internal risks that may be present. These risks include marketing, distribution, or technical issues
that may compromise the two projects’ success. For the purpose of weighing each project’s merit, how might these risks be measured and mitigated?
Prompt: To complete this third part of the final project, you will continue your analysis by conducting a risk assessment. Specifically, you will:
Identify the potential business risks that apply to the projects being considered by the New Heritage Doll Company,
Quantify the financial impacts of the risk , and
Select appropriate methods for mitigating those risks.
To do this, locate the relevant numbers from the case study and perform profitability index calculations. A profitability index can be used as an arbiter when
capital constraint effectively makes two projects mutually exclusive. In this instance, the NPVs of the two projects are nearly the same, but one project creates
more NPV per dollar of the capital budget expended. It is also an index maximizing choice.
