Running head: CASE STUDY: PAN-EUROPA FOODS

Pan-Europa Foods
Corporate Strategy Analysis
Prathibha Vemulapalli
Cleary University

CASE STUDY: PAN-EUROPA FOODS

1. Pan-Europa should not cut the dividends as it might signal a lack of faith in future to its
investors and shareholders. Selling new stocks at the current low price to raise the capital is also
a bad idea that can potentially put the shareholders in dilemma. They must improve the
performance to make the investors come forward to invest in the business. They should
concentrate in decreasing the capital spending and increasing the stock price and should decrease
their debt by avoiding over spending. They should not increase their assets by debt financing as
their debt to-equity ratio is extremely high after the price war thus making them highly
leveraged. Fabienne Morin and Nigel Humbolt should be leading these strategic improvement
projects since they encouraged growth and increased market share.
2. While we have three different ways to calculate NPV from the exhibit, NPV at the minimum
accepted Rate of Return includes a risk premium so it stays constant even with varying project
durations. WACC on the other hand has difficulties in maintaining the capital structure therefore
Equivalent Annuity should be used in this case. The order of the projects would be
1. Strategic Acquisition
2. Eastward Expansion
3. Snack Foods
4. Southward Expansion
5. Inventory Control System
6. Artificial Sweeteners
7. New Plant

CASE STUDY: PAN-EUROPA FOODS

8. Expanded Plant
9. Automation and Conveyor System
10. Expand Truck Fleet
11. Effluent Treatment Program
Since the Effluent Treatment Program is not subjected to NPV, we can say it as an investment of
$4 million to compensate a cost of $10 million in 4 years like mentioned in the case.
3. Political aspects of the organization, corporate strategy and its incompatibilities, Regulations
pertaining to safety and environment, Risk involvement, Resource allocations are some of the
aspects that might invalidate the above rankings. While different tools and analysis conclusions
are available, the following ways can be used to correct the above stated problems

Time value of money can be calculated by using methods like NPV.

Equivalent Annuities can overcome the problems of unequal project durations.
Increasing the hurdle rate can overcome the risk in the projects
Project sizes can be can be measured using a profitability ratio.

4. The Effluent Treatment Program and Automation and Conveyor Systems, artificial sweeteners
are must do projects since they are related to customer safety and environmental issues. Projects
involving introduction of new product line have higher risk because the customer is completely
foreign to the product and that initial appearance will make a big influence on the customers and
the reviewers focus on new product more. Increasing the technological advancements in the
projects involve high risk so automation of artificial sweeteners and Inventory Control System
are the ones with more risk involved. Apparently, expanding the truck fleet should have a lower
risk. There might be conflicts when doing eastward and southward market expansions. Projects

CASE STUDY: PAN-EUROPA FOODS

such as effluent treatment involve non-quantitative benefits since it is related to environment and
customer safety. Automation of artificial sweeteners can also be one as it brings a big impact on
the employees health. New plant will be a benefit since it creates new employment opportunities
but can be a cost if the residencies in the surroundings complain.
5. With respect to all the above reasons, the following factors should be considered to narrow
down the most desirable project.

If the project meets the current corporate strategy

If the project involves high risk

If the project meets minimum IRR

If the project is a Mandatory project

If the project meets maximum payback period

Artificial Sweetener, New Plant, Truck fleet and Automation and Conveyor System can be
eliminated because they exceed the maximum payback period. Truck Fleet project can be
eliminated as it does not meet the minimum Internal Rate of Return. Artificial Sweetener can be
eliminated due to excessive risk and Strategic Acquisition eliminated due to high cost.
6.

CASE STUDY: PAN-EUROPA FOODS

The project numbers are pointed out clearly in the project type profiles in the above picture and
therefore a chart is not provided to avoid repetitive writing
7. Based on all the above factors, the following projects should be recommended to the board of
directors.
1.
2.
3.
4.
5.

Effluent Treatment
Eastward Expansion
Southward Expansion
Snack Foods
Inventory Control

CASE STUDY: PAN-EUROPA FOODS

References
Meredith, J., & Mantel, S. (1995). Project management: A managerial approach (8th ed.). New
York: Wiley.