Euroland

Executive Summary : Euroland foods is a stable name in the market , it has grown well in the market over the years , but now it is planning to allocate the budget for the newly planned activities which are costing it more than 300 Million Euros but the company has to invest only 120 Million Euros . Various people from the upper management have come up with their suggestions for investment , few of them are very good and are acceptable in just a blink of the eye but many of them require greater search and evaluation for their validity . It is suggestible to first evaluate the alternatives and then rank them so that best of the activities could take place within the allocated budget . Strengths Weaknesses : In replacement and expansion of the truck fleet , the company can increase the number of goods hauled on the truck and this could reduce the transportation costs in the long run , further it could possibly have a greater market coverage but it is very costly to go for this option as Klink is not doing any experiment and going directly for 100 new trucks . The Internal Rate of Return 7 .8 percent is comparatively low to the minimum set for the company which is 8 percent . For an investment of 30 million and a projected gain of 11 .6 million in the next seven years is rather low as compared to what other projects can bring . The acquisition of new plant is although a good option but yet it is not very useful option as the investment in the entire plant can be risky and can put a lot of burden on the entire company 's budget , it is

suggested that the company should buy a warehouse to support the growing needs of the customers for ice cream and yogurt . Another problem would be related to the labor hiring which would result in more costs . The Internal Rate of Return of 11 .3 percent is higher than the minimum value they have to meet . Payback for the whole plant itself would take over 10 years , even though it will be yielding 35 .6 million after tax cash flow . The expansion of the plant is a good idea as the market needs are completely growing and cannot be supported by any other plant , the plant capacity would increase by 20 but the drawback is that it is supporting those products that are not having the highest share i-e mineral water and fruit juices . The Internal Rate of Return would be 11 .2 percent , which could result to an additional production of 2 .25 million per year . Morin has come up with a good suggestion as the processing of dried fruit and its launch would enhance the company 's portfolio and also it would be a brand extension , it has got a fair possibility of growth as Europe is a cold region , the IRR is also expected to be higher than the required but then... Euroland Foods S.A. Out of the 11 capital projects considered for the upcoming year our team has developed a strategy which will propel Euroland foods into the next level of global business. Under the board of directors spending limit of EUR120 million EUR119.25 million would be invested in our proposed projects. Our allocation of funds that best suits Euroland foods are based on NPV, economics, share value, and payback period. The various capital projects were also considered on the track record of the manager supporting each project and the probability of market share gain, brand image, and share value growth. The capital projects proposed are the expansion of a plant, effluent-water treatment at four plants, market expansion southward, acquisition of a leading schnapps brand and associated facilities, and a partial replacement and expansion of the truck fleet. Expansion of Plant The Nuremburg plant is experiencing some difficulties in reaching deadlines and scheduling production. It is at full capacity and is in need of expansion. This plant supplies both central and Western Europe so meeting its required production is at much importance. Mr. Maarten Layden backs this project on his knowledge on cost control. Scheduling needs must be accurate in order to meet budgets. This will reduce

cost and also meet consumer demand by supplying at its fullest yielding an IRR of 11.2% it exceeds the minimum ROR of 10%. Effluent-water treatment at four plants The four year deadline to meet mandatory compliance to treat waste water will be here in no time. If Euroland Foods purchases the necessary equipment today at EUR6 million rather than in four years at EUR15 million the savings will be EUR9 million. European regulatory agencies are already on the forefront of waste water pollution and have been known to shorten compliance time. Euroland Foods must address this environmental issue... http://www.docshare.com/doc/82013/Casestudy-for-finance-Which-is-the-best-choic FCF and Analysis of Proposed Projects (all Values in millions) Project 1 2 3 4 5 6 7 8 9 Expand Truck Fleet New Plant Expanded Plant Snack Foods Automation & Conveyer Systems Southward Expansion Eastward Expansion Artificial Sweetner Inventory Control System Investment Property 30.00 37.50 15.00 22.50 21.00 0.00 0.00 22.50 22.50 Working Capital 3.00 7.50 0.00 4.50 0.00 30.00 30.00 4.50 0.00 Year 0 -17.10 -45.00 -15.00 -9.00 -21.00 -30.00 -30.00 -27.00 -18.00 1 -11.85 3.00 1.88 -9.00 4.13 5.25 4.50 4.50 8.25 2 4.50 7.50 2.25 -9.00 4.13 6.00 5.25 6.00 8.25 3 5.25 8.25 2.63 4.50 4.13 6.75 6.00 6.75 7.50 4 6.00 9.00 3.00 4.50 4.13 7.50 6.75 7.50 5 6.75 9.38 3.38 6.00 4.13 8.25 7.50 7.50 6 7.50 9.75 3.75 6.75 4.13 9.00 8.25 7.50 7 10.50 10.13 2.25 7.50 4.13 9.75 9.00 7.50 8 7.50 2.25 8.25 10.50 9.75 7.50 9 7.88 2.25 9.00 11.25 10.50 7.50 10 8.25 2.25 9.75 12.00 11.25 7.50

Expected FCFC 11.55 35.64 10.89 29.25 7.91 56.25 48.75 42.75 6.00 (Undiscounted) Payback (years) 6 6 6 7 6 5 5 5 3 Maximum Payback Accepted 4 5 5 6 4 6 6 6 4 IRR 7.8% 11.3% 11.3% 13.4% 8.7% 21.4% 18.8% 20.5% 16.2% Minimum Acepted ROR 8.0% 10.0% 10.0% 12.0% 8.0% 12.0% 12.0% 12.0% 8.0% Spread -0.2% 1.3% 1.3% 1.4% 0.7% 9.4% 6.8% 8.5% 8.2% NPV (WACC 10.6%) -2.88 1.49 0.41 3.74 -1.31 17.99 13.49 13.43 1.75 NPV at Minimum ROR -0.19 2.81 0.82 1.79 0.48 14.85 10.62 10.97 2.67 10.6% Equivalent Annuity -0.04 0.46 0.13 0.32 0.09 2.63 1.88 1.94 1.03 RANKINGS NOTE__> Effluent Treatment is considered Project #11 120M Project Investment NPV Payback IRR EA PI 1 33 -2.88 6 7.8% -0.04 -0.087 2 45 1.49 6 11.3% 0.46 0.033 3 15 0.41 6 11.2% 0.13 0.027 4 27 3.74 7 13.4% 0.32 0.139 5 21 -1.31 6 8.7% 0.09 -0.062 6 30 17.99 5 21.4% 2.63 0.600 7 30 13.49 5 18.8% 1.88 0.450 8 27 13.43 5 20.5% 1.94 0.497 9 22.5 1.75 3 16.2% 1.03 0.078 10...