Project Portfolio Selection - Case Study
Strategically, what must Pan-Europa do to keep from becoming the victim of a hostile takeover? What rows/categories in Exhibit 2 will become critically important in 1993? What should Pan-Europa do now that they have won the price war? Who should lead the way for Pan-Europa?
Pan-Europa’s ball and chain is its debt. With a debt-to-equity ratio of 125%, the company is leveraged more than its competitors. Pan-Europa’s bankers have become unwilling to provide additional credit, which is unfavorable if conditions call for the purchase of a large block of common stock to prevent a hostile takeover. As a preventative measure, Pan-Europa must bolster shareholder confidence by continuing to pay the dividend and driving up earnings, which should drive stock price up.
Showing annual revenue growth through wise capital investment is crucial in 1993. Exhibit 2 below shows the company’s flat trend in gross sales, declining net income and earnings per share. Clearly these are signs of an overleveraged organization. Investment firms are already recommending selling Pan-Europa stock, driving the market price down. Fiscal Year Ending December 31 | | 1990 | 1991 | 1992 | Gross sales | 1,076 | 1,072 | 1,074 | Net income | 51 | 49 | 37 | Earnings per share | 0.75 | 0.72 | 0.54 | Dividends | 20 | 20 | 20 | Total assets | 477 | 580 | 656 | Shareholders' equity (book value) | 182 | 206 | 235 | Shareholders' equity (market value) | 453 | 400 | 229 |
To remedy this situation, Pan-Europa must leverage their existing market share. The existing financial condition is due to a price war that helped increase market share. Now is the time to put that increased market share to work. Investment in new product development provides the opportunity to leverage the newly gained market share. Fabienne Morin has proposed two projects that capitalize on the Rolly brand but also takes advantage of the opportunity to put these new products in front of those new customers.
Using NPV,
Pan-Europa’s ball and chain is its debt. With a debt-to-equity ratio of 125%, the company is leveraged more than its competitors. Pan-Europa’s bankers have become unwilling to provide additional credit, which is unfavorable if conditions call for the purchase of a large block of common stock to prevent a hostile takeover. As a preventative measure, Pan-Europa must bolster shareholder confidence by continuing to pay the dividend and driving up earnings, which should drive stock price up.
Showing annual revenue growth through wise capital investment is crucial in 1993. Exhibit 2 below shows the company’s flat trend in gross sales, declining net income and earnings per share. Clearly these are signs of an overleveraged organization. Investment firms are already recommending selling Pan-Europa stock, driving the market price down. Fiscal Year Ending December 31 | | 1990 | 1991 | 1992 | Gross sales | 1,076 | 1,072 | 1,074 | Net income | 51 | 49 | 37 | Earnings per share | 0.75 | 0.72 | 0.54 | Dividends | 20 | 20 | 20 | Total assets | 477 | 580 | 656 | Shareholders' equity (book value) | 182 | 206 | 235 | Shareholders' equity (market value) | 453 | 400 | 229 |
To remedy this situation, Pan-Europa must leverage their existing market share. The existing financial condition is due to a price war that helped increase market share. Now is the time to put that increased market share to work. Investment in new product development provides the opportunity to leverage the newly gained market share. Fabienne Morin has proposed two projects that capitalize on the Rolly brand but also takes advantage of the opportunity to put these new products in front of those new customers.
Using NPV,