Our team has created a strategy to help Euroland foods reach new heights in the global market by considering 11 capital projects for the upcoming year. Within the board of directors’ spending limit of EUR120 million, EUR119.25 million will be invested in our proposed projects. We have allocated funds based on NPV, economics, share value, and payback period to ensure they align with Euroland foods’ objectives.
The manager’s track record and the potential for market share gain, brand image enhancement, and share value growth were among the factors considered for each capital project. The proposed projects include expanding a plant, implementing effluent-water treatment at four plants, expanding into new markets, acquiring a leading schnapps brand and its facilities, and partially replacing and expanding the truck fleet. The Nuremburg plant is currently facing challenges with meeting deadlines and production scheduling.
With its current capacity already maxed out, the plant is in urgent need of expansion. As it serves both central and Western Europe, ensuring its production meets the necessary requirements is of utmost importance. Mr. Maarten Layden supports this project due to his expertise in cost control. Accurate scheduling is essential to stay within budget, which will ultimately reduce costs and meet consumer demand by maximizing production. Furthermore, achieving an Internal Rate of Return (IRR) of 11.2% surpasses the minimum Required Rate of Return (ROR) of 10%. The treatment of effluent water at four plants must be prioritized as the mandatory compliance deadline is approaching rapidly within four years.
If Euroland Foods buys the equipment now for EUR6 million instead of waiting four years and paying EUR15 million, they will save EUR9 million. European regulatory agencies are already leading the way in addressing waste water pollution and have a reputation for reducing compliance time. Euroland Foods needs to take action on this environmental issue right away to prevent their pollution record from becoming public. By addressing compliance issues early, Euroland Foods can promote themselves as a responsible and environmentally friendly company.
Delaying this issue will definitely result in losses. The proposal of acquiring a renowned schnapps brand and its facilities may seem costly to some, but it is anticipated to generate significant returns and enhance the company’s growth prospects. It is imperative to consider Mr. Humbolt’s expertise and determination, as he has conducted thorough research and possesses the motivation to undertake unique projects that others may overlook.
Given its financial capacity and advantageous location, the company is in a prime position to invest in a project that will not only yield greater returns but also facilitate the growth of its customer base and product variety. It is strongly suggested that the company proceed with acquiring the other company. Allocating EUR60 million towards this promising endeavor will surely generate significant profits.
Opting for cheaper projects may lead to reduced risk but also result in a lower return on investment. Conversely, investing in high-return ventures that require more resources is the sole path to achieving greater profits. Out of the 11 proposed projects, one project stands out due to its significant cost and offering the highest internal rate of return (IRR) at 27.5%. This percentage exceeds the minimum accepted rate of return (ROR) by 15.5%. The project involves partially replacing and expanding our truck fleet. After evaluating four other capital projects, we had EUR8.5 million remaining and determined that enhancing our truck fleet would immensely benefit Euroland Foods.
The original suggestion was to buy 100 trucks within a span of 2 years and sell 60 devalued trucks, resulting in a net increase of 40 trucks for the fleet. However, we have formulated a new strategy to procure 25 new trucks and selectively replace and sell existing trucks to optimize overall transportation expenditure. By acquiring these more economical tractor trailers, Euroland Foods can significantly reduce transportation costs while expanding towards the south.
