Euroland Foods S.A.
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Euroland Foods was to meet to draw up the firms capital budget for the New Year. Up for consideration were 11 major projects that totaled more than EUR 316 million. Unfortunately, the board of directors had imposed a spending limit on capital projects of only EUR 120 million, even so investment at a rate would represent a major increase in the firms current asset base od EUR 965 million. Thus the challenge for the senior managers of Euroland Foods was to allocate funds among the range of compelling projects: New product introduction, acquisition, market expansion, efficiency improvements, preventive maintenance, safety, and pollution control
Type of Project
Minimum Acceptable IRR
Maximum Acceptable Payback years
New product or new markets
6years
Product or market extension
5 years
Efficiency improvements
4 years
Safety or environmental
No test
No test
Summary of Project Proposal
Investment (project)
Amount
Payback years
Evaluation
Replacement and expansion of the truck fleet
EUR 4.05 million
2 years
A new plant
EUR 37.5 million
11.3%
10 years
Expansion of plant
EUR 15 million
11.2%
7 years
Development and roll out of snack foods
EUR 22.5 million
13.4 %
7 years
Plant automation and conveyer systems
EUR 21 million
Effluent-water treatment at four plants
EUR 6 million
4 years
Market expansion southward
EUR 56.3 million
21.4%
10 years
Market expansion eastward
EUR 48.8 million
18.8%
10 years
Development and introduction of new artificially sweetened yogurt and ice cream
EUR 27 million
20.5%
Network computer-based-inventory-control system for warehouses and field representatives
EUR 18 million
16.2%
3 years
Acquisition of a leading schnapps brand and associated facilities
EUR 198.5 million
27.5%
Conclusion and Recommendation
According to the case, Euroland Foods sales had been static since 1998 due to the low population growth of Northern Europe and market saturation in some areas. The best solution that I see with regards to solving this problem is through market expansion. The proposal made by Marco Ponti is perfectly fit to help the company attain growth and improvement. The company should focus on Southward Market Expansion because of high internal rate of return that would be beneficial to the company plus the fact that those who came from the