CASE STUDY

SYNDICATE: 
 Andry Permana ‐ 29117342 
 
 Bona Sulthony ‐ 29117323 
 
 Deni Eka Prasetya ‐ 29117337 
   Doni Sujana Putra ‐ 29117336 
   Ghazian Luthfi ‐ 29117341 
 
EUROLAND FOOD SA  
 

 
FINANCIAL MANAGEMENT 
 Table of Contents 
 

1.  CASE SUMMARY .................................................................................................................................... 3 
1.1. Background of the problems .............................................................................................................. 3 
1.2. Problem Statements .......................................................................................................................... 3 
2.  DATA SUMMARY ................................................................................................................................... 4 
2.1. Resources Allocation .......................................................................................................................... 4 
2.3. Members of The Senior‐Management Committee............................................................................ 4 
2.4. Free Cash Flows and Analysis of Proposed Projects .......................................................................... 8 
3.  DATA ANALYSIS ..................................................................................................................................... 8 
4.  RECOMMENDATIONS ......................................................................................................................... 10 
 

   

Page 1 of 10 
 
 List of Tables 
 

Table 1. Project hurdles ................................................................................................................................ 4 
Table 2. Heinz Klink Profile and Projects ....................................................................................................... 5 
Table 3. Maarten Leyden Profile and Projects .............................................................................................. 6 
Table 4. Fabienne Morin Profile and Projects ............................................................................................... 7 
Table 5.  Marco Ponti Profile and Projects ................................................................................................... 7 
Table 6.  Nigel Humbolt Profile and Projects ................................................................................................ 7 
Table 7.  Free Cash Flows and Analysis of Proposed Projects....................................................................... 8 
Table 8.  IRR, Payback Period, NPV and DPI for each project ....................................................................... 8 
Table 9.  Proposed of top 5 projects ............................................................................................................. 9 
Table 10. Four Proposed Projects based on Quantitative Analysis ............................................................ 10 
Table 11.  Four Proposed Projects based on Budget Constraint ................................................................ 10 

 Table of Figures  
 

Figure 1.  Project IRR ..................................................................................................................................... 9 
Figure 2.  Project Payback Period ................................................................................................................. 9 
 

   

Page 2 of 10 
 
1. CASE SUMMARY  

 
1.1. Background of the problems 
Euroland is a Belgium multinational firms that produced high quality ice cream, yogurt, bottled 
water,  and  fruit  juice.  Scandinavia,  Britain,  Belgium,  the  Netherlands,  Luxembourg,  western 
Germany,  and  northern  France  are  the  market  area  for  its  products.  Ice  cream  leading  on  60 
percent of firm revenue; yogurt contributed approximately 20% and the remaining 20% else divided 
equally between bottled water and fruit juice. Ice cream the company’s leading product had a loyal 
based of customers. But since 1998 the Euroland Food’s sales had been static. Management argued 
that low population growth in northern Europe and market saturation caused this static sale. From 
outside views faulted recent failures in new‐product introductions. Most members of management 
wanted to expand the company’s presence introduce more new products to boost sales that would 
improve the  company’s market value.  Euroland Foods stock was currently 14 times earnings, just 
below  book  value.  This  price/earnings  ratio  was  below  the  trading  multiples  of  comparable 
company, and it gave little value to company’s brands. 

Senior  management  committee  of  Euroland  were  challenged  to  allocate  limited  spending  on 
capital project for only 120 million imposed by the boards of directors, in early January 2001. There 
were  11  major  projects  that  totalled  316  million  and  investment  in  this  rate  would  represent  a 
major increase in firm’s current asset base of 965 million. 

1.2. Problem Statements 
 

The  Senior  management  committee  want  to  select  some  projects  for  increasing  the  company 
value without exceeding available capital budget of 120 million.   

Page 3 of 10 
 
2. DATA SUMMARY 

2.1.   Resources Allocation 
Capital budget at Euroland Foods was prepared annually by a committee of senior managers, 
who then presented it for approval to the board directors. As a matter of policy, investment 
proposals were subject to two financial test; payback and internal rate of return (IRR). 
Test  or  hurdles  had  been  published  in  1999  by  the  management  committee  and  variate 
among type of project. The estimated weighted‐average cost of capital (WACC) of Euroland 
was 10.6 percent published in January 2001. 
Minimum Acceptable  Maximum Acceptable 
Type of Project 
IRR  Payback Year 
1. New product or new  12%  6 year 
markets 
2. Product or market extension  10%  5 years 
3. Efficiency improvements  8%  4 years 
4. Safety or environmental  No test  No test 
 

Table 1. Project hurdles 

2.3. Members of The Senior‐Management Committee 
 

Heinz Klink 
Profile 
Position  :  Managing Director for Distribution 
Job Desk  :  Oversaw transportation, warehousing, and order‐fulfillment 
Main Concern  :  Spoilage, transport cost, stock‐outs, and control system 
Projects Name  
a. Replacement and expansion of truck fleet 

Page 4 of 10 
 
 Brief description: 
Buy 100 refrigerated tractor‐trailer trucks, 50 each in 2001 and 2002. 
Objective: 
 Efficiency 
Advantage:  
‐ New trucks capacity 15% larger 
‐ New Tractors will be more fuel and maintenance efficient 
‐ More flexible scheduling and more efficient routing and servicing of the fleets. 
‐ More frequent delivery to the company’s major market. 
‐ Delivery change will be shorter  
‐ Would reduce he loss of sales caused by stock‐outs 

b. Networked, computer‐based inventory control system for warehouses, and field 
representatives 
Brief description 
Setup networked, computer‐based inventory control system to support supply chain 
management. 
Objective:  
Efficiency 
Advantages: 
‐ Short term delay in ordering and order processing. 
‐ Better control of inventory 
‐ Reduction of spoilage 
‐ Faster recognition of changes in demand at the customer level 
 

Table 2. Heinz Klink Profile and Projects 

Maarten Leyden 
Profile 
Position  :  Managing Director for Production Purchasing 
Job Desk  :  Managed production operation at the company’s 14 plants 
 

Main Concern  :  Production cost control 

Projects Name 
a. New plant 
Brief description: 
Build new plant to produce ice cream and yoghurt in south eastern region to meet the 
market demand. 
Objective:  
Market extension 
Advantages: 
‐ Increase sales 
‐ Reduce delivery cost 
 

Page 5 of 10 
 
 b. Expansion of a plant 
Brief description: 
Expand plant to produce mineral water and fruit juice in southeastern region to 
increase production capacity. 
Objective:  
Market extension  
Advantages: 
‐ Increase production 
‐ Scheduling of routine equipment maintenance become easier. 
c. Plant Automation and conveyor systems 
Brief description: 
Automation production line 
Objective  : Efficiency 
Advantages  :  
‐ Improve Speed in production 
‐ Reduce Accident 
‐ In turn will reduce potential cost related to compensation of injury 
d. Effluent‐water treatment at four plants 
Brief description: 
Set up the water treatment equipment to reduce poisonous chemical. 
Objective  :  
Society and Environment/meet legal requirement 
Advantages: 
‐ Potential cost reduction 
‐ Maintain the company reputation  
 

Table 3. Maarten Leyden Profile and Projects 

Fabienne Morin 
Profile 
Position  :  Managing Director for Marketing 

Job Desk  :  Marketing research, new‐product development,  advertising, and 
brand management 
     Main Concern  :  Production cost control 
Projects Name 
a. Development and roll‐out of snack foods 
Brief description: Utilizing the excess capacity to prudoce dried fruit 
Objective  :  New market/product 
Advantages  :  
‐ Utilize the excess capacity 
‐ Creating new market 
‐ The plan based on experience of other companies 
 

Page 6 of 10 
 
 b. Development and introduction of new artificially sweetened yoghurt and ice cream 
Brief description:  
Objective : New product and efficiency 
Advantages  :  
‐ Cost saving 
‐ Stimulating demand for low‐calorie products. 
‐ Protecting market share 
 

Table 4. Fabienne Morin Profile and Projects 

Marco Ponti 
Profile 
Position  :  Managing Director for Sales 

Job Desk  :  Oversaw the field sales force of 250 representatives and planned 
changes in geographical sales coverage 
     Main Concern  :  Rapid expansion and geographical positioning 
Projects Name  
a. Market expansion in  southward/eastward 
Brief description:  
The Company expanded its market southward including France, Switzerland, Italy, and 
Spain  and/or  Eastward  to  include  eastern  Germany,  Poland,  Czechoslovakia,  and 
Austria. 
Objective               : Market extension 
Advantages  :  The time is right to expand yoghurt and ice cream geographically 
 

Table 5.  Marco Ponti Profile and Projects 

Nigel Humbolt 
Profile 
Position  :  Managing Director for Strategic Planning 

Job Desk  :  Set up strategic planning staff 
     Main Concern  :  Growth and Market share 
Project  
a. Acquisition of a leading schnapps brand and associated facilities 
Brief description: Making diversifying acquisitions in an effort to move beyond 
company’s mature core business 
Objective : New product category 
Advantages  :  
‐ Cordial and liqueurs offered unusual opportunities for real growth and market 
protection through branding 
 

Table 6.  Nigel Humbolt Profile and Projects 

Page 7 of 10 
 
 2.4. Free Cash Flows and Analysis of Proposed Projects 
 

Project 1 2 3 4 5 6 7 8 9 10
Expanded Automation
Expand New Plant Plant and Southw ard Eastw ard Inventory- Strategic
Truck Fleet (Dijon, (Nuremberg, Snack Conveyer Expansion Expansion Artificial Control Acquisition
(note 3) France) Germany) Foods Systems (note 5) (note 5) Sw eetener System (note 6)
Investment
Property 30,00 37,50 15,00 22,50 21,00 0,00 0,00 22,50 22,50 45,00
Working Capital 3,00 7,50 0,00 4,50 0,00 30,00 30,00 4,50 0,00 15,00
Year EXPECTED FREE CASH FLOWS (note 4)
0 -17,10 -45,00 -15,00 -9,00 -21,00 -30,00 -30,00 -27,00 -18,00 -25,00
1 -11,85 3,00 1,88 -9,00 4,13 5,25 4,50 4,50 8,25 -30,00
2 4,50 7,50 2,25 -9,00 4,13 6,00 5,25 6,00 8,25 7,50
3 5,25 8,25 2,63 4,50 4,13 6,75 6,00 6,75 7,50 13,50
4 6,00 9,00 3,00 4,50 4,13 7,50 6,75 7,50 16,50
5 6,75 9,38 3,38 6,00 4,13 8,25 7,50 7,50 19,50
6 7,50 9,75 3,75 6,75 4,13 9,00 8,25 7,50 22,50
7 10,50 10,13 2,25 7,50 4,13 9,75 9,00 7,50 25,50
8 7,50 2,25 8,25 10,50 9,75 7,50 28,50
9 7,88 2,25 9,00 11,25 10,50 7,50 31,50
10 8,25 2,25 9,75 12,00 11,25 7,50 88,50
Undiscounted Sum 11,55 35,63 10,88 29,25 7,88 56,25 48,75 42,75 6,00 198,50

Payback (years) 6 6 6 7 6 5 5 5 3 5
Maximum Payback Accepted 4 5 5 6 4 6 6 6 4 6

IRR 7,8% 11,3% 11,2% 13,4% 8,7% 21,4% 18,8% 20,5% 16,2% 27,5%
Minimum Accepted ROR 8,0% 10,0% 10,0% 12,0% 8,0% 12,0% 12,0% 12,0% 8,0% 12,0%
Spread -0,2% 1,3% 1,2% 1,4% 0,7% 9,4% 6,8% 8,5% 8,2% 15,5%

NPV at Corp. WACC (10.6%) -2,88 1,49 0,41 3,74 -1,31 17,99 13,49 13,43 1,75 69,45

NPV at Minimum ROR -0,19 2,81 0,82 1,79 0,48 14,85 10,62 10,97 2,67 59,65

Equivalent Annuity (note 2) -0,04 0,46 0,13 0,32 0,09 2,63 1,88 1,94 1,03 10,56
 
Table 7.  Free Cash Flows and Analysis of Proposed Projects 

3. DATA ANALYSIS 
Below is the IRR, Payback Period, NPV and DPI for each project that already calculated, 
IRR- NPV at
IRR Payback (yrs) DPI
No Project Type of Project ROR minimum
Minimum IRRCalculatedMaximumCalculated Calc NPV DPI
Replacement and Expansion of the Efficiency
1 8.00% 7.80% 4 6 -0.20% -0.19 0.99
Truck Fleet Improvements
Product or market
2 A new plant 10.00% 11.30% 5 6 1.30% 2.81 1.06
extension
Product or market
3 Expansion of a Plant 10.00% 11.20% 5 6 1.20% 0.82 1.05
extension
Development and roll out of snack New Product of
4 12.00% 13.40% 6 7 1.40% 1.79 1.07
food New Markets
Plant automation and conveyor Efficiency
5 8.00% 8.70% 4 6 0.70% 0.48 1.02
system Improvements
Safety or
6 Effluent water treatment at four plants Not Test Not test
Environmental
Product or market
7 Market expansion southward 10.00% 21.40% 5 5 9.40% 14.85 1.50
extension
Product or market
8 Market expansion eastward 10.00% 18.80% 5 5 6.80% 10.62 1.35
extension
Development and introduction of new
New Product of
9 artificially sweetened yogurt and ice 12.00% 20.50% 6 5 8.50% 10.97 1.41
New Markets
cream
Networked, computer based inventoru
Efficiency
10 control system for warehouses and 8.00% 16.20% 4 3 8.20% 2.67 1.12
Improvements
field
Acquisition of a leading schnapps New Product of
11 12.00% 27.50% 6 5 15.50% 59.65 1.99
brand and associated facilities New Markets  
Table 8.  IRR, Payback Period, NPV and DPI for each project 

Page 8 of 10 
 
 Figure 1.  Project IRR  

Figure 2.  Project Payback Period 

 
Based  on  decision  criteria  using  Highest  IRR,  Minimum  payback  period,  maximum  NPV,  Maximum 
Profitability  Index  considering  Investment  cost,  below  is  the  proposed  of  top  5  projects  that 
highlighted  on  orange  cell.  We  also  considered  that  Environmental  project  such  as  Effluent  Water 
treatment  is  a  mandatory  project,  and  that  project  have  to  be  executed.  Additionally,  the 
investment cost for today is 6 million and will be 15 million if executed in 4 years later (equal PV 10 
million) when the regulation must be met. 

NPV at minimum
IRR Payback (yrs) IRR- ROR Investment DPI
No Project Type of Project ROR
Cost
Minimum IRRCalculated P/F MaximumCalculated P/F Calc Rank NPV Rank DPI Rank
Replacement and Expansion of the Efficiency
1 8.00% 7.80% Fail 4 6 Fail -0.20% Fail 33 -0.19 Fail 0.99 Fail
Truck Fleet Improvements
Product or market
2 A new plant 10.00% 11.30% Pass 5 6 Fail 1.30% Fail 45 2.81 Fail 1.06 Fail
extension
Product or market
3 Expansion of a Plant 10.00% 11.20% Pass 5 6 Fail 1.20% Fail 15 0.82 Fail 1.05 Fail
extension
Development and roll out of snack New Product of
4 12.00% 13.40% Pass 6 7 Fail 1.40% Fail 27 1.79 Fail 1.07 Fail
food New Markets
Plant automation and conveyor Efficiency
5 8.00% 8.70% Pass 4 6 Fail 0.70% Fail 21 0.48 Fail 1.02 Fail
system Improvements
Safety or
6 Effluent water treatment at four plants Not Test Pass Not test Pass 1 6 1 1
Environmental
Product or market
7 Market expansion southward 10.00% 21.40% Pass 5 5 Pass 9.40% 3 30 14.85 3 1.50 3
extension
Product or market
8 Market expansion eastward 10.00% 18.80% Pass 5 5 Pass 6.80% 6 30 10.62 5 1.35 5
extension
Development and introduction of new
New Product of
9 artificially sweetened yogurt and ice 12.00% 20.50% Pass 6 5 Pass 8.50% 4 27 10.97 4 1.41 4
New Markets
cream
Networked, computer based inventoru
Efficiency
10 control system for warehouses and 8.00% 16.20% Pass 4 3 Pass 8.20% 5 23 2.67 6 1.12 6
Improvements
field
Acquisition of a leading schnapps New Product of
11 12.00% 27.50% Pass 6 5 Pass 15.50% 2 60 59.65 2 1.99 2
brand and associated facilities New Markets

    Table 9.  Proposed of top 5 projects 

Page 9 of 10 
 
4. RECOMMENDATIONS 
   

Considering only quantitative analysis (DPI and IRR) to pursue highest NPV the selected projects would 
be as below. This option however will exceed budget limitation of 120 million. 

No Project Investment Cost NPV Remarks

Compliance project that will cost 15
Effluent water treatment at four
1 6 million in 4 years later (equal PV 10
plants
million)
Acquisition of a leading schnapps Significant growth opportunity and
2 60 59.65
brand and associated facilities market protection through branding
More purchasing
3 Market expansion southward 30 14.85
power and less competition
Development and introduction of new
Significant cost
4 artificially sweetened yogurt and ice 27 10.97
savings to food and beverage producers
cream
Total 123 85
 

Table 10. Four Proposed Projects based on Quantitative Analysis 
 

Considering budget constraint then our final proposal will be as below. 

The  Inventory  Control  System  Project  is  selected  even  though  there  is  other  project  with  better  NPV 
(Artificial Sweetener Project). But due to budget constraint, we choose inventory control system project 
instead. 

No Project Investment Cost NPV Remarks

Compliance project that will cost 15

Effluent water treatment at four
1 6 million in 4 years later (equal PV 10
plants
million)

Acquisition of a leading schnapps Significant growth opportunity and

2 60 59.65
brand and associated facilities market protection through branding

More purchasing
3 Market expansion southward 30 14.85
power and less competition
Shortening delays
in ordering and order processing, better
Networked, computer based
control of
4 inventoru control system for 23 2.67
inventory, reduction of spoilage, and
warehouses and field
faster recognition of changes in demand
at the customer level
Total 119 77
 
Table 11.  Four Proposed Projects based on Budget Constraint 

Page 10 of 10