Pan Europa Foods

1. With the performance of the company stagnant since 3 years and debt-to-equity ratio at 125% Pan-Europa has to improve its profitability to hold confidence of its investors. Now that the price war has consolidated, it is important for the company to increase it P/E ratio. One quick way for the company to improve its profitability and reduce debt financing is to raise the price of those products which sustained the price wars. In the long run, the company has to increase its stagnant sales by introducing new product lines and expanding its market share to new areas. Humbolt and Ponti would be the right choice to lead Pan-Europa’s strategies in 1993.

2. The NPV financial analysis ranks the available investment alternatives accordingly. The one with higher NPV value is ranked higher as it is expected to have higher cash flows in future. But to avoid discrepancies in project durations Annuity would be the best option to rank alternatives. The alternatives in the order of their ranking are Strategic Acquisition, Snack food making, Eastern expansion, Southern Expansion, Inventory control, artificial sweetener introduction, New plant construction, Expansion of plants, Automation of Systems and Expansion of truck fleet. The Effluent plant construction does not have NPV value.

Risk assessment for delaying the effluent plant construction should be conducted.

It should evaluate the potential loss to the brand value, loss due to increased costs of equipment etc. should be included in risk analysis.

3. European community regulators might shorten the 4 year compliance time and this would make the effluent water treatment plant construction most important. The NPV ranking did not take this risk into consideration. The time value of money (NPV) and unequal lifetimes can be corrected by using the Equivalent Annuity vales to rank the alternatives instead of NPV values. Riskiness is corrected by fixing appropriate minimum acceptable IRR and maximum acceptable...