Euroland Foods S.A
12 Pages Posted: 21 Oct 2008
In January 2001, the senior management committee of this company has to decide which major projects should be funded for implementation by the company starting in 2001. The board of directors arbitrarily set a limit of (euros) EUR120 million to be spent on capital projects in 2001. Various managers, however, have proposed projects totaling EUR316 million. The task for the student is to evaluate the completed discounted cash flow (DCF) analyses presented along with qualitative factors (mainly strategic considerations and internal politics of the company), and to choose the projects to be approved.
EUROLAND FOODS S.A.
In early January 2001, the senior management committee of Euroland Foods was to meet to draw up the firm's capital budget for the new year. Up for consideration were 11 major projects that totaled more than EUR316 million. Unfortunately, the board of directors had imposed a spending limit on capital projects of only EUR120 million. Even so, investment at that rate would represent a major increase in the firm's current asset base of EUR965 million. Thus, the challenge for the senior managers of Euroland Foods was to allocate funds among a range of compelling projects: new product introduction, acquisition, market expansion, efficiency improvements, preventive maintenance, safety, and pollution control.
Headquartered in Brussels, Belgium, Euroland Foods was a multinational producer of high-quality ice cream, yogurt, bottled water, and fruit juices. Its products were sold throughout Scandinavia, Britain, Belgium, the Netherlands, Luxembourg, western Germany, and northern France. (See Exhibit 1 for a map of the company's marketing region.)
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Keywords: capital budgeting, budget, capital investment, DCF, discounted cash flow, profitability analysis
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Euroland Foods S.A
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