Pan Europa Essay

BackgroundPan Europa Foods is companionship, located in Brussels, Belgium, producing high-quality ice cream, yogurts, bottled piddle and fruit juices. Its products are sold throughout Scandinavia, Britain, Belgium, the Netherlands, Luxemburg, western Germany and northern France. In January 1993, the senior-management committee of Pan-Europa Foods must decide which major rolls to fund for that year. The available capital for implementation is set as 80 million euros. However confused managers, have proposed confinements totalling 208 million euro. Capital rationing has been identified as the main(prenominal) problem that the management of the company has to deal with. The management has to identify projects that would trump out achieve benefits of strategic importance. Problem statementAccording to case in that location is no evidence that projects would be proposed with some alignment to any strategy, accusation or vision. thither are only few criteria defined that projects should mount to, like Minimum Payback period, expected IRR, etc. There is no strictly defined project selection methodology in place. The project selection is based on the discussions and voting by the seven managing directors. The monetary tests were the payback period and internal rate of return, which meant that the time value of notes was ignored. AnalysisThe current funding for Pan Europa is mainly rooted in debt financing debt-to-equity ratio is 125%, that is more higher than most of they peers have. after(prenominal) price war is over, Pan Europa bankers strongly recommended to reduce debt level significantly. because company should pay attention on actions how to decrease capital spending. There readiness be some(prenominal) finance based methods for project valuation in place, like NPV, Annuity ( delinquent to project characteristics), IRR, etc. And the results for evaluation might differ significantly. Like, if we are looking for long term activities, then, using annuity calculation we give find that preferred project would be the strategical science. Projects sorted by this figure would be Strategic Acquisition eastward ExpansionSnack FoodsSouthwardExpansion Inventory Control organizationArtificial SweetenersNew found ExpandedPlant Automation conveyer System ExpandTruck Fleet Effluent Treatment class (which has no NPV) While the Effluent Treatment Program has no imposing NPV it can be considered an investment of 4M now to save a be of 10M in 4 years. In fact, there are many aspects that could quash the simple NPV abstract of the projects. They include Risk Political considerations Regulatory issues including health, gum elastic and environmental Incompatibility with corporate strategy Resource avail efficacy purely speaking there are no must to do projects on the desk. Water interference project (Effluent Treatment) is upcoming in nearest future. that right now there is no evidence that this project has to be started right no w. The advanced regulation might come in 4 years, unless might be postponed as well. Of course this project shouldnt be forgotten. All existing project might be reveal in a following sections Increase efficiencyExtension (either new plant building or new market capturing) R&DRegarding risk assessment, Projects that involve small technology changes like expanding the truck quiver would have low risk. Increasing levels of technological sophistication such as automation or introducing artificial sweeteners into products would also increase implementation risks. From fiscal perspective as the risk area we should consider that any producer in a capitalist environment is attempting to increase markets with new products in new areas. The prospective customers may simply choose to not bribe the product. There are many risks regarding project implementation itself, like project size, complexity and length of the period of return, etc. Meanwhile tangible risks, there are several(prenomi nal) aspects, like correlation between several projects.For vitrine market expansions will come together with necessity to increase ability to deliver goods to consumers location (most probably truck fleet upgrade will be required). All projects mentioned in case are evaluated against financial figures, but besidesfinancial aspects, there are several non-quantitative points included. Projects that impact the companys regulator compliance such as effluent treatment (environment) and warehouse automation safety. Several of the projects could impact the companys image. For example, the sharpen on low fat products (artificial sweetener project) might increase companies reputation. likely Project evaluation should be done based on several factors. One of the most important points is financial benefits evaluation. There might be following characteristics taken in account for evaluation Does the project fits in corporate strategy?Expected cost level, does it exceeds Tolerable Cost Value . maximal payback period analysis.IRR evaluation, does the project meet minimum IRR?Risk analysis does the project incur high risk?Financial characteristics were chosen due to significant information presence in case. Besides financial aspects several other might be taken in consideration, for instance cordial factors (staff treatment), then company would focusses more on projects improving environment for jade force. Applying screens and criteria mentioned above and strictly following companies internal rules, the following projects would be eliminated right away Truck Fleet upgrade because it does not meet the minimum IRR and exceeds the maximal payback period dictated by company policy. New Plant, Plant Expansion, Artificial Sweetener and Plant Automation all because they exceed the level best payback period dictated by company policy. Strategic Acquisition would be eliminated due to excessive risk.