Pan - Europa Case Study

1. Briefly describe the business performance of Pan-Europa Foods. Is there any concern for the firm?

Pan Europa Food is a European producer of yogurt, ice cream, bottled water and fruit juices. With slow sales and declining stock values, the company needs to increase net income and increase investor confidence to avoid repurchase. With this in mind, the company decided to allocate 80 million euros from assets 656 million dollars to spend on investment projects. There are 11 proposals on the table totaling $ 208 million from which the Advanced Management Organization must choose. Currently, the company has two measures to determine whether the project is economically feasible for the company, acceptable minimum IRR and maximum payback period. Considering these tools and other non-critical tools, the management team will decide between the 11 projects proposed by the various senior managers in the company.

1. Using the NPV, conduct a straight financial analysis of the investment alternatives and rank the projects.

Due to the duration of the project it would be wise to use the Equivalent Annuity instead. (Annuity corrects for differences in duration among various projects.) The Equivalent Annuity of a project is that level annual payment over 10 years that yields a net present value (NPV) equal to the NPV at the minimum required rate of return for that project.

Table 1: Financial analysis of the investment alternatives