Euroland Foods S. A. Capital Budget 3/11/2010 Group 6 Euroland Foods S. A. Out of the 11 capital projects considered for the upcoming year our team has developed a strategy which will propel Euroland foods into the next level of global business. Under the board of directors spending limit of EUR120 million EUR119. 25 million would be invested in our proposed projects. Our allocation of funds that best suits Euroland foods are based on NPV, economics, share value, and payback period.
The various capital projects were also considered on the track record of the manager supporting each project and the probability of market share gain, brand image, and share value growth. The capital projects proposed are the expansion of a plant, effluent-water treatment at four plants, market expansion southward, acquisition of a leading schnapps brand and associated facilities, and a partial replacement and expansion of the truck fleet. Expansion of Plant The Nuremburg plant is experiencing some difficulties in reaching deadlines and scheduling production.
It is at full capacity and is in need of expansion. This plant supplies both central and Western Europe so meeting its required production is at much importance. Mr. Maarten Layden backs this project on his knowledge on cost control. Scheduling needs must be accurate in order to meet budgets. This will reduce cost and also meet consumer demand by supplying at its fullest yielding an IRR of 11. 2% it exceeds the minimum ROR of 10%. Effluent-water treatment at four plants The four year deadline to meet mandatory compliance to treat waste water will be here in no time.
If Euroland Foods purchases the necessary equipment today at EUR6 million rather than in four years at EUR15 million the savings will be EUR9 million. European regulatory agencies are already on the forefront of waste water pollution and have been known to shorten compliance time. Euroland Foods must address this environmental issue immediately before its pollution record becomes public. By meeting compliance issues early Euroland Foods can use this as a marketing tool advertising that Euroland Foods is a responsible and environmentally friendly company.
If this issue is delayed losses are guaranteed. Acquisition of a leading schnapps brand and associated facilities This proposal might seem too expensive for many to want to take it into consideration; however, it is expected to make high returns and strengthened the company’s growth opportunities. Mr. Humbolt needs to be taken into consideration, because he has done his research, and is a well experience man, that has the inspiration and incentive to take on projects that no one else will.
The company has the ability to invest in a project that will not only bring higher returns but also enhance its range of consumers and products. The company should not be hesitant in taking over this other company, it has the money, being that the location of the company is exceptional and on top of that a leading company. The EUR60 million will be invested in a brilliant project with prospective earnings, guaranteed to be profitable.
Investing in less expensive projects might be less risky but the return will be low, however, for the company to see the higher returns it needs to invest in projects that require more input being that it’s the projects that will bring the greatest return. Of the 11 proposed projects this one is the most expensive, but at the same time it is the one with the highest IRR of 27. 5% which is 15. 5% above its minimum accepted ROR. Partial replacement and expansion of the truck fleet After the four capital projects chosen by our team we had EUR8. 5 million left over and decided a partial replacement and expansion of the truck fleet would greatly benefit Euroland Foods. The initial proposal was to purchase 100 trucks in 2 years and sell 60 depreciated trucks this would expand the fleet by 40 trucks. Our plan is to purchase 25 new trucks and replace and sell existing trucks as needed to improve overall transportation cost. The acquisition of these new more cost efficient tractor trailers would greatly reduce transportation cost as Euroland Foods expands southward.