Jack Welch

Laurentian Bakery

Abstract

Laurentian Bakery operates in the frozen pizza segment in the Canada Market. They have come across an opportunity to expand their operations to USA by securing a contract with an American retail store. The company will need to expand its existing facilities in order to cater to this additional demand. The company has holistic criteria of evaluating capital expenditures. The company meets most of the non-financial criteria. However, it is not clear if the company will be able to meet the hurdle rate of 18% required on expansion projects. A detailed analysis of the cash flows associated with the project has been constructed. It is believed that the company will not be able to meet the hurdle rate. However, the WACC of the company is estimated to be much lower than the hurdle rate. It is believed that the project exhibits the average riskiness of the company, and it should be discounted at the WACC. If the project is discounted at the WACC, it produces a positive net present value. The project represents a significant opportunity to expand into the larger American market. Moreover, the existing plant has reached its full capacity, and it requires an expansion to meet future increases in demand. Therefore, it is recommended that the company undertakes the expansion project, as it provides a significant opportunity and is likely to add value to the company.

Introduction

Laurentian is a Canada-based company that operates in the frozen pizza market. The company is the second largest company in the frozen pizza market with a market share of over 20%. It focuses on producing low-cost and high quality pizza and selling it through the retail channel. The company has focused on the concept of continuous improvement, and it strives to expand its business operations while maintaining efficiencies. It also considers the interests of all stakeholders and considers employee well-being and environment impacts when making strategic decisions. The...