Laurentian

Overview: Laurentian bakeries manufacture a variety of frozen baked food products such as pizzas (Winnipeg Plant), cakes (Toronto Plant) and pies (Montreal Plant). Laurentian currently enjoys 21% market share of frozen pizza in Canada and is planning to expand its frozen pizza plant in Winnipeg, Manitabo in order to meet the production capacity required for expanding into the U.S frozen Pizza market. The objective of this literature is to analyze the financial implications of the expansion of the Winnipeg plant on Laurentian Bakeries Inc. and justify our recommendations based on the analysis.
Roadmap: The financial study conducted on behalf of the Laurentian Bakeries involves an analysis of the proposed expansion project of its Winnipeg plant. We start our analysis by calculating the required return that an investor will want from the firm as a whole – the weighted average cost of capital (WACC). Since the Winnipeg project is in-line with the Laurentian’s main business, we found this approach appropriate to compute the appropriate rate to use its cash flows. But risks are involved as their target market will be in United States and factors like exchange rates, supply chain management and government regulations can affect the business. We then proceeded to the next logical step – the computation of the Net Present Value – that is used in capital budgeting to analyze the profitability of the expansion of Winnipeg plant. Using realistic assumptions, we did scenario and sensitivity analysis to understand their corresponding effects on the NPV. We have stated our key assumptions that drive the computation and form the basis of our analysis. Graphical illustrations of the various variables that affect NPV are included in the exhibit to bring attention to factors that need to be thought about before the project is taken up. We have also included the analysis of non-quantitative factors that are relevant to the decision on this project. The conclusion of this report is...