Pan Europa Foods Case Study Summary

 

Question 2:

a. Using NPV, conduct a straight financial analysis of the investment alternatives

and rank the projects. Which NPV of the three should be used?

Due to the duration of the project it would be wise to use the Annuity instead since itcorrects discrepancies project durations unlike the NPV. Using this analysis thepreferred project would be 11, the Strategic Acquisition. Then following in order wouldbe:

Eastward Expansion

Snack Foods

Southward Expansion

Inventory Control System

Artificial Sweeteners

New Plant

Expanded Plant

Automation and Conveyor System

Expand Truck Fleet

Effluent Treatment Program (which has no NPV)While the Effluent Treatment Program has no formal NPV it can be considered aninvestment of 4M now to save a cost of 10M in 4 years.

Question 3a. Whataspects of the projects might invalidate the ranking you just derived?

There are many aspects that could invalidate the simple NPV analysis of the projects.They include

Risk

Political considerations

Regulatory issues including health, safety and environmental

Incompatibility with corporate strategy

Resource availability

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