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Pan-Europa Case Study

Q1:

In order to avoid a potential hostile takeover, Pan-Europa must keep current shareholders satisfied with company performance. The company must prove it is competitive and able to meet the short-term and long-term demands of the consumer through innovative product expansions, efficiency improvements, and modest market expansions. By doing so, the shareholders will retain their shares and not make them available to raiders like Carlo de Bendetti or the Flick brothers.

Earnings per share, dividends, and shareholders’ equity (market value) will, therefore, become critically important in 1993. Earnings per share refers to the portion of a company's profit allocated to each outstanding share of common stock and
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Other quantitative measurements should also be considered such as the length of the project, the anticipated payback period and the amount of the initial investment. In addition, this singularly-focused method does not take into consideration the many qualitative factors associated with projects such as their risk, their urgency, and their alignment with corporate strategy.

Net present value can help address the time value of money when comparing projects. Each potential project's value should be estimated using a discounted cash flow (DCF) valuation, to find its net present value (NPV). The NPV decision rule asserts that all positive NPV projects should be accepted in an unconstrained environment, or if projects are mutually exclusive, the projects with the highest NPV should be accepted. In addition, the equivalent annuity metric expresses the NPV as an annualized cash flow by dividing it by the present value of the annuity factor; therefore, it can be used to compare the projects even though they have unequal lifetimes. The risk associated with projects can be integrated into the process by comparing the NPV calculations that utilize the IRR rather the WACC. The IRR’s have been calculated within the company on a sliding scale that recognizes the risk associated with various types of projects. Lastly, the size of the projects can be accounted for by ranking the (profitable) projects based on size and

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