Laurentian Bakery Case

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Executive Summary
This report is written by Knowles. This report is written for project review team of Laurentian Bakeries Inc. This report projects a new expansion strategy for the Winnipeg plant to meet the demand of the new deal.
Founded in 1984 Laurentian Bakeries Inc. operates in the industry of manufacturing a vast variety of frozen baked products within their three operating plants in Montreal, Winnipeg and Toronto. The operating plants produce items such as frozen pizza in Winnipeg, Manitoba, pies in Montreal, Quebec and Cakes in Toronto, Ontario - with each representing 30%, 30% and 40% of the total revenue stream respectively. The buyers for this company include large institutional clients such domino’s pizza, etc. which have a
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The land price at end of 4th year is $99542. Other savings also vary from 70% to 130% and hence adjustments are made to fixed cost.
2
Calculation
The following values have been used for calculations:
PROPERTY
NET WORKING CAPITAL
SALE VALUE OF LAND
VALUE
Value differs per year
REMARKS
40 days of revenue for current year and 38 days of revenue for next four $5,293,750
Land, equipment, building NET CAPITAL SPENDING SALVAGE VALUE OF EQUIPMENT $2,550,402 UCC at the end of four years $51,342
Appreciation of land is considered @1.5% and discounted @18%
10% of 3300000 minus cost savings of 138000 PRICE/UNIT $1.7

FIXED COST
Scenario Analysis
$192,000
For the scenario analysis the following situations have been considered:
FACTORS UNITS SOLD
FIXED COST
YEAR
As per the contract
Fixed cost savings of $192000
50% of the contracted amount
Additional 30% of saving in FC is realized
Full capacity of plant is utilized(6.54 million)
Additional fixed cost increases by 30%

Base
Lower
Upper
As per expectations (reduction of 70% of $0.019 in first year and $0.019 in other years Reduction of $0.019 cents in all the years
Cost reduction of 50% of base values.

COST PER UNIT Net Present Value for various projects were calculated and have been mentioned in the appendix. The NPV for different scenarios are as follows: Base-case scenario NPV = $ 2,940,351 Best-case scenario NPV = $ 2,975,152

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