财务管理案例（LAURENTIAN BAKERIES）.docVIP

LAURENTIAN BAKERIES The decision-maker must make a recommendation on a large expansion project. Discounted cash flow analysis is required. In late May, 1995, Danielle Knowles, vice-president of operations for Laurentian Bakeries Inc., was preparing a capital expenditure proposal to expand the company’s frozen pizza plant in Winnipeg Manitoba. If the opportunity to expand into the U.S. frozen pizza market was taken, the company would need extra capacity. A detailed analysis, including a net present value calculation, was required by the company’s Capital Allocation Policy for all capital expenditures in order to ensure that projects were both profitable and consistent with corporate strategies. COMPANY BACKGROUHD Established in 1984, Laurentian Bakeries Inc. (Laurentian) manufactured a variety of frozen baked food products at plants in Winnipeg (pizzas), Toronto (cakes) and Montreal (pies). While each plant operated as a profit center, they shared a common sales force located at the company’ head office in Montreal. Although the Toronto plant was responsible for over 40% of corporate revenues in fiscal 1994, and the other plants was accounted for about 30% each, all three divisions contributed equally to profits. The company enjoyed strong competitive positions in all three markets and it was the low cost producer in the pizza market. Income Statements and Balance Sheets for the 1993 to 1995 fiscal years are in Exhibits 1 and 2, respectively. Laurentian sold most of its products to large grocery chains, and in fact, supplying several Canadian chains with private label brand pizzas generated much of the sales growth. Other sales were made to institutional food services. The company’s success was, in part, the product of its management’s philosophies. The cornerstone of Laurentian’s operations was its including a commitment to a business strategy promoting continuous improvement; for example all employees were empowered to think about and make suggestions for ways