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Guide questions Guide Questions What are the investment measures in case Exhibit and what do they measure Investment Measures IRR Payback What do they measure Measures the pro ?tability of potential investment Measures the length of time that it takes for

Guide Questions What are the investment measures in case Exhibit and what do they measure Investment Measures IRR Payback What do they measure Measures the pro ?tability of potential investment Measures the length of time that it takes for a project to recover its initial cost from the net cash in ows that it generates Sometimes referred as ??the time that it takes for an investment to pay for itself ? Prepare to discuss the strengths and weaknesses of the various measures of investment attractiveness as used by Euroland Foods Will all of the measures rank the projects identically Why or Why not IRR Advantages a Simplicity Disadvantages a Ignores the size of the project b The timing of cash ow is considered b Ignores reinvestment rates c Ignores Future Costs d Hurdle Rate is not required Payback Advantages Disadvantages a Simplicity a No risk adjustment b Provide information about how long funds b Ignores cash ows beyond the will be tied up in a project c Shorter the payback the greater the payback period c Ignores time value of money project's liquidity d Is often important to new companies that are cash poor Please rank the proposals on the basis of purely economic consideration Ranked by IRR Ranked by Payback Acquisition E uent Water Go Southward M M M Inventory Control E uent Water Acquisition M M M Ranked by Pro ?tability Index Acquisition M E uent Water M Go Southward M CInventory Control Total M M Arti ?cial Sweetener Go Southward Go Eastward M M M Inventory Control Total M M Rank the proposals a second time bases on any other considerations that you believed that important Project E uent Water Replacement and Expansion of the Truck Fleet Plant Automation and Conveyer Systems Bene ?ts a Protecting present market share b Environmental category c Building a good reputation a increase in cubic meters of goods hauled on each trip b The new tractors would also be more fuel and maintenance e ?cient c The increase in the number of trucks would permit it more exible scheduling and more e ?cient and will cut delivery times possibly inventories d Support geographical expansion over long term a Reduced the chance of injury by employees b Improved throughout speed Investment Cost M M M C Development and Introduction of New Arti ?cial Sweetener Inventory Control TOTAL a Growing demand for low calorie products b Protecting of present market share c Prevent brand su ?ering a Shorter delays in ordering and order processing b Better control of inventory c Reduction of spoilage d Faster recognition of changes in demand at the customer level M M M Are the rankings identical Why or why not Which set of projects should Verdin recommend to the board of Euroland Foods for the capital budget of C