Project Management a Managerial Approach Pan Europa Case

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Pan-Europa Case Study
Q1:
In order to avoid a potential hostile takeover, Pan-Europa must keep current shareholders satisfied with company performance. The company must prove it is competitive and able to meet the short-term and long-term demands of the consumer through innovative product expansions, efficiency improvements, and modest market expansions. By doing so, the shareholders will retain their shares and not make them available to raiders like Carlo de Bendetti or the Flick brothers. Earnings per share, dividends, and shareholders’ equity (market value) will, therefore, become critically important in 1993. Earnings per share refers to the portion of a company's profit allocated to each outstanding share of common stock and serves as an indicator of a company's profitability. Dividends refer to the share of a company's profits passed on to the shareholders on a periodic basis. Dividends have been consistent in recent years and maintaining or increasing these payments is an indication of confidence in the future of the company. Lastly, shareholder’s equity (market value) refers to the total dollar market value of the amount by which a company is financed through common and preferred shares. When market confidence in a company remains strong and stock prices remain high, there is a decreased likelihood of an outside investor accumulating stock at low prices (for a potential hostile takeover). Beyond just financial considerations, there are also strategic decisions that the company must make. Whereas ranking projects based solely on the IRR and NPV sets a short term course, a long term strategy must be considered. The company must decide if it wants to claim the strong hold won in the recent price wars through continued low prices and volume or if they would like to diversify further and capture unchartered markets. Rather than launching a group of disparate projects set for pure monetary growth, the company should be aware that an overall strategy must be set in order to guide the growth into the future. Following the price war, Pan Europa must make a decision to either maintain the low prices and focus on reducing their production costs or look at potential growth opportunities to offset the losses being incurred due to the price wars. The price wars proved to be very hard on the company as it relied heavily on debt in order to sustain itself. It is doubtful that Pan-Europa can continue to keep prices as low. Therefore, the company should capitalize on the market share captured through continued marketing and modest price cuts. The future of the company will best be served by the leadership of Wihelmina Verdin. Verdin has experience in marketing and brand management and successfully grew the company into the low-fat yogurt and ice cream business. She is cautious about growth but eager to position the company for long term successful growth. Q2:

In order to rank the projects based strictly on NPV calculations, the preferred metric will be the NPV at Minimum ROR. This calculation includes the use of a sliding scale of IRR that recognizes the differences in risk associated with various types of projects. When evaluating the projects in this way, the preferred ranking is: 1. Strategic Acquisition (41.43)

2. Eastward Expansion (9.90)
3. Snack Foods (7.31)
4. Southward Expansion (7.08)
5. Artificial Sweetener (3.88)
6. New Plant (1.87)
7. Inventory-Control System (1.78)
8. Expanded Plant (.55)
9. Automation and Conveyor Systems (.32)
10. Expanded Truck Fleet (-.13)

The effluent project can be evaluated by comparing the cost of completing the project now versus the cost of completing the project in four years when the immediate conversion will become mandatory. The current cost of the project is €4 million while the cost in four years is expected to be €10 million. The PV of the future cost will be $6,707,348 when considering the 10.5% WACC. As such, it will be cheaper to conduct the...
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