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Case Study Of Pan-Europa Foods's Spending Limit

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Spending Limit
In 1993, Pan-Europa Foods’ senior-management were to draw up the firm’s capital budget for the new year, having imposed a spending limit of only ECU80 million on 11 major projects that totalled over ECU120 million. With the imposed spending limit and 11 major projects, Pan-Europa Foods management will have to then make decisions on their capital investments, whether to reduce the number of projects or find other means of investing to all projects and make sure that current and future cash flow of the company, remains on the positive.
The most fundamental decision a business must make concerns its product line. What services will we offer or what will we sell? In what markets will we compete? What new products will we introduce? …show more content…

Every allocation of resources is an investment in the future. Because of the complex nature of most strategies, many of these investments are in projects. The proper choice of investment projects is crucial to the long-run survival of every firm. Daily we witness the results of both good and bad investment choices. In our daily newspapers we read of Cisco System’s decision to purchase firms that have developed valuable communication network software rather than to develop its own software. We read of Procter and Gamble’s decision to invest heavily in marketing its products on the Internet; British Airways’ decision to purchase passenger planes from Airbus instead of from its traditional supplier, Boeing; or problems faced by school systems when they update student computer labs—should they invest in Windows-based systems or stick with their traditional choice, Apple. But can such important choices be made rationally? Once made, do they ever change, and if so, how? These questions reflect the need for effective selection …show more content…

Next we consider the limitations, strengths, and weaknesses of project selection models, including some suggestions of factors to consider when making a decision about which, if any, of the project selection models to use. We then discuss the problem of selecting projects when high levels of uncertainty about outcomes, costs, schedules, or technology are present, as well as some ways of managing the risks associated with the uncertainties (Jack R. Meredith, Samuel J. Mantel, Jr: 8th Ed:

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