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Date Submitted: 02/02/2015 01:50 PM
PAN-EUROPE FOODS S.A.
CASE SOLUTION
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Project Overview
Multinational company and headquartered in Brussels, founded at 1924. Products
– – – – ice cream (60% of the revenues), yogurt (20%), bottled water (10%), fruit juice (10%).
Marketing region (See Exhibit 1)
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Exhibit 1
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Capital Budget
11 major projects that totalled over EUR 208 million. The board of directors had imposed a spending limit of EUR 80 million. The challange for the senior managers was to allocate funds among a range of compelling projects; new product
introduction, acquisition, market expansion, efficiency improvements, preventive maintenance, safety and pollution control.
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Pan-Europe Sales
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Pan-Europe Sales (continued)
Sales had been static and reasons are;
– The low population growth in northern Europe – Market saturation in some areas – The recent failures in new product introductions
Some managers wanted to intruduce more new products.
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Resource Allocation
The capital budget at Pan Europe was prepared annually and investment proposals included;
– Project description – A financial analysis – Strategic issues – Qualitative considerations
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Project evaluation
Two financial tests;
– Payback period – IRR
Type Min. IRR New product or new markets 12% Product or market extension 10% Efficiency improvements 8% Safety or environmental No test
Max. Payback 6 years 5 years 4 years No test
Weigted-average cost of capital (WACC): 10.5 %
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The Expenditure Proposals
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Question 1: Pan-Europa is currently trading at a price below comparable companies. This is because of reduced profitability and a failure to gain sufficient market share for new products. As analysts are giving a “sell” signal, raiders are potentially buying up the stock. Clearly then they must pursue...