Euroland Foods S.A.

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 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 firm's 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

1. New product or new markets 12% 6years

2. Product or market extension 10% 5 years

3. Efficiency improvements 8% 4 years

4. Safety or environmental No test No test

Summary of Project Proposal

Investment (project) Amount IRR Payback years Evaluation

1. Replacement and expansion of the truck fleet EUR 4.05 million 7.8% 2 years F

2. A new plant EUR 37.5 million 11.3% 10 years P

3. Expansion of plant EUR 15 million 11.2% 7 years P

4. Development and roll out of snack foods EUR 22.5 million 13.4 % 7 years P

5. Plant automation and conveyer systems EUR 21 million 8.7% P

6. Effluent-water treatment at four plants EUR 6 million 4 years P

7. Market expansion southward EUR 56.3 million 21.4% 10 years P

8. Market expansion eastward EUR 48.8 million 18.8% 10 years P

9. Development and introduction of new artificially sweetened yogurt and ice cream EUR 27 million 20.5% P

10. Network computer-based-inventory-control system for warehouses and field representatives EUR 18 million 16.2% 3 years P

11. Acquisition of a leading schnapps brand and associated facilities EUR 198.5 million 27.5% P

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

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