Pan Europa Case Analysis

1. Using the company 's cost of capital, the net present value (NPV) is the sum of the discounted cash flows minus the original investment. One of the major problems with Pan-Europa is their existing low stock price. In order to increase their value, they must take up projects that increase their stock values, including those that would allow them to increase gross sales that have been stagnant over the years. The values presented in Exhibit 3 allow us to compare these projects based on various factors. Considering NPV as a factor, it is suggested to compare the value of “Equivalent Annuity” of a project, which is that level annual payment over 10 years that yields a NPV equal to the “NPV at Minimum ROR”, thus, correcting the difference in duration among various projects. Thus, the projects can be ranked as:

a. Acquisition of a leading schnapps brand and associated facilities. b. Market expansion eastward. c. Development and rollout of snack foods. d. Market expansion southward. e. Networked, computer-based inventory control system for warehouses. f. Development and introduction of artificially sweetened yogurt. g. A new plant. h. Expansion of a plant. i. Plant automation and conveyor systems. j. Replacement and expansion of truck fleet. k. Effluent water treatment (since the water-treatment equipment could be purchased today for ECU4 million; and it is speculated that the same equipment would cost ECU10 million in four years when immediate conversion became mandatory.)

2. The non financial aspects that we have to consider in project selection, in addition to financial aspect, are strategic, technical, commercial, political, social, environmental, organizational, human resource and management .Some of the factors that might invalidate the strategic financial analysis using NPV may include:

a. Amount of risk associated with each of the projects. b. Availability of competent infrastructure and resources for a