Pan-Europa Foods Case Analysis

1063 Words Sep 22nd, 2015 5 Pages
Pan-Europa Foods Case Analysis

Executive Summary

Pan Europa foods is a European producer of yogurt, ice cream, bottled water, and fruit juice. With stagnant gross sales and decreasing stock value, the company needs to increase its net income and increase confidence in its shareholders to avoid a takeover. With this in mind, the company decides to allocate $80 million Euros out of its $656 million asset base to capital spending in investment projects. There are currently 11 proposals on the table totaling $208 million from which the Senior Management Committee must choose from. Currently the company has two financial measures to determine if projects are economically sufficient for the firm, minimum acceptable IRR and maximum
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The effluent project can be evaluated with non-quantitative methods, such as factoring in the positive or negative image of the brand as a result with compliance or non-compliance with the environmental regulations. In quantitative terms, the firm would be incurring less of a loss if it paid $4 million now opposed to $10 million later.

3.) Aspects of the projects that could invalidate the above ranking:

* Customer’s perception of the brand as a result of the project
* Uncertainty of results
* Availability of Resources
* Government Regulations
* Whether it aligns with the firm’s goals

The firm can correct for each of the following factors:

* Time value of money use NPV
* Unequal Lifetimes use equivalent annuity
* Riskiness increase required rate of return for riskier projects
* Size use profitability ratio

4.) Reconsideration of projects in terms of:

* “Must Do” – The effluent water project is a “must-do” because the firm will be required to comply with environmental regulations in the future.

* Elements of riskiness – The uncertainty in a project’s outcome, in terms of the final cost and expected results can imply…