Pan Europa Essay

BackgroundPan Europa Foods is political party, located in Brussels, Belgium, producing senior high school-quality drinking glass cream, yogurts, bottled water and fruit juices. Its products are sold passim Scandinavia, Britain, Belgium, the Netherlands, Luxemburg, western Ger galore(postnominal) and northern France. In January 1993, the senior-management committee of Pan-Europa Foods essential decide which major projects to fund for that year. The available notes for performance is set as 80 million euros. However various managers, have proposed projects totalling 208 million euro. detonating device rationing has been identified as the main chore that the management of the company has to deal with. The management has to hear projects that would best achieve benefits of strategic importance. Problem parameterAccording to case there is no tell that projects would be proposed with some alignment to any dodge, cathexis or vision. There are only some criteria defined that pr ojects should apply to, give care Minimum vengeance finis, expected IRR, etcetera There is no rigorously defined project selection methodology in place. The project selection is based on the discussions and balloting by the seven managing directors. The monetary tests were the payback menses and internal rate of return, which meant that the time value of funds was ignored. AnalysisThe current funding for Pan Europa is mainly rooted in debt financing debt-to-equity ratio is cxxv%, that is more higher than most of they peers have. After bell war is over, Pan Europa bankers strongly recommended to reduce debt take epoch-makingly. Therefore company should pay attention on actions how to decrease capital spending. There power be several finance based methods for project evaluation in place, like NPV, Annuity (due to project characteristics), IRR, etc. And the results for evaluation mightiness differ significantly. Like, if we are flavour for long term activities, then, us ing annuity tally we will find that preferred project would be the Strategic learning. Projects sorted by this figure would be Strategic AcquisitionEastward Expansionsting FoodsSouthwardExpansion Inventory Control trunkArtificial Sweeteners brand-new gear up ExpandedPlant mechanisationConveyor System Expandhand truck Fleet Effluent Treatment Program (which has no NPV) While the Effluent Treatment Program has no formal NPV it can be considered an investment of 4M nowadays to save a cost of 10M in 4 years. In fact, there are many aspects that could avert the simple NPV analysis of the projects. They include Risk policy-making considerations Regulatory issues including health, safety and environmental Incompatibility with somatic strategy Resource avail cleverness Strictly utterance there are no must to do projects on the desk. Water treatment project (Effluent Treatment) is upcoming in nearest future. But right now there is no evidence that this project has to be started ri ght now. The new regulation might catch in 4 years, but might be postponed as well. Of course this project shouldnt be forgotten. All existing project might be split in a following(a) sections cast up efficiencyExtension (either new plant expression or new market capturing) R&DRegarding risk assessment, Projects that involve small technology changes like expanding the truck make it would have low risk. increase levels of technological sophistication much(prenominal) as mechanisation or introducing artificial sweeteners into products would also increase implementation risks. From financial perspective as the risk theater of operations 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 take in to not buy the product. There are many risks regarding project implementation itself, like project size, complexity and length of the period of return, etc. Meanwhile ta ctual risks, there are several aspects, like correlation between several projects.For instance market expansions will come together with necessity to increase ability to deliver goods to consumers location (most probably truck fleet win will be required). All projects mentioned in case are evaluated against financial figures, but overlyfinancial aspects, there are several non-quantitative points included. Projects that bear upon the companys regulator compliance such as effluent treatment (environment) and warehouse mechanisation safety. Several of the projects could impact the companys image. For example, the counselling on low fat products (artificial sweetener project) might increase companies reputation. Prospective Project evaluation should be done based on several factors. one and only(a) of the most important points is financial benefits evaluation. There might be following characteristics taken in account statement for evaluation Does the project fits in corporate st rategy?Expected cost level, does it exceeds Tolerable Cost Value. maximum payback period analysis.IRR evaluation, does the project meet marginal 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 social factors (staff treatment), then company would focusses more on projects improving environment for labour force. Applying screens and criteria mentioned above and strictly following companies internal rules, the following projects would be eliminated outright Truck Fleet upgrade because it does not meet the minimum IRR and exceeds the maximum payback period dictated by company policy. New Plant, Plant Expansion, Artificial Sweetener and Plant Automation all because they exceed the maximum payback period dictated by company policy. Strategic Acquisition would be eliminated due to excessive risk.