Case Study On Euro Land Foods Finance Essay

Case Study On Euro Land Foods Finance Essay The company was founded in 1924 by Theo verdin a previous as a subsidiary of his dairy business. His keen attention to product Development and grew business steadily over the year .the company went public in year 1979 and by 1993, was listed on trading in the London and Germany exchanges. In January 2001, the senior management of Euro land foods was to draw the firm’s one year capital budget and up for new 11 major projects are imposed to spending limit on capital of 120 million pound. Investment at that rate would be representing a major increase in the firm’s current assets base on 965 million pound. The senior manager challenge of Euro land foods to allocate funds among a range of compelling project, new product introduce and preventive maintenance, safety and pollution control. As a matter of policy, investment proposals at Euro land foods were subject to two financial test, payback and internal rate of return. NET PRESENT VALUE (NPV) The net present value (NPV) re quires cash flow discounting by making use of the so-called risk-adjusted cost of capital, which serves the purpose of accounting for risk. A widespread model employed for computing the cost of capital is the capital asset pricing model (CAPM). Rubinstein (1973) and other scholars in the late 1960s and 1970s have provided the link between CAPM and capital budgeting decisions: in their classical contributions they show that, if the CAPM assumptions are met, then the cost of capital is a function of the systematic risk, which is given by the beta of the project. The latter depends in turn on the cost of the project, which implies that it is a disequilibrium beta. The corresponding NPV is therefore disequilibrium NPV. If†¦ It means†¦ Then†¦ NPV > 0 the asset would add value to the definite the venture may be acknowledged NPV < 0 the asset would take from value as of the firm the plan should be unwanted NPV = 0 the asset would neither gain nor misplace value for the firm We should be uncaring in the conclusion whether to accept or refuse the project. This plan adds no monetary value. Decision should be base on other criteria, e.g. designed position or other factors not evidently included in the calculation. Formula: Npv =CFo+ ___CF____ ( 1+k) n Example:- Year Cash flow Present Value 0 100,000 1 22,727 2 20,661 3 18,783 4 17,075 5 15,523 Internal rate of return:- It is a different economical cash flow practice which takes report of the extent and time of cash flow. Formula: – IRR=LOWER RATE+ npv at lower rate x (HIGHER RATE -LOWER Rate) Npv at lower rate -NPV at higher rate Example 1. If a speculation may be given by the chain of cash flows: Year (n) Cash Flow (Cn) 0 -4000 1 1200 2 1410 3 1875 4 1050 Then the IRR  r  is given by . In this case, the answer is 14.3%. 1. Project with NPV and IRR:- The research on the resource-constrained project scheduling problem is focused mainly on two types of objectives: objectives based on time and obje ctives based on cost. Both of these factors, i.e. time and cost, are indispensable in practical applications. Year