Free Cash Flows and Analysis of Proposed Projects1 (all values in ECU millions)

1
Expand
Truck
Fleet
(note 3)

New Plant

Expanded
Plant

Artificial
Sweetener

20.00
2.00

25.00
5.00

10.00

(11.40)
(7.90)
3.00
3.50
4.00
4.50
5.00
7.00

(30.00)
2.00
5.00
5.50
6.00
6.25
6.50
6.75
5.00
5.25
5.50

(10.00)
1.25
1.50
1.75
2.00
2.25
2.50
1.50
1.50
1.50
1.50

Undiscounted Sum

7.70

23.75

7.25

Payback (years)
Maximum Payback Accepted

6
4

Project
Investment
Property
Working Capital
Year
0
1
2
3
4
5
6
7
8
9
10

6
5

6
5

15.00

10

Eastward
Expansion
(note 5)

Southward
Expansion
(note 5)

Snack
Foods

InventoryControl
System

Strategic
Acquisition
(note 6)

20.00

15.00
3.00

15.00

20.00

30.00
10.00

(18.00)
3.00
4.00
4.50
5.00
5.00
5.00
5.00
5.00
5.00
5.00

(12.00)
5.50
5.50
5.00

(15.00)
(20.00)
5.00
9.00
11.00
13.00
15.00
17.00
19.00
21.00
59.00

28.50

4.00

134.00

14.00

EXPECTED FREE CASH FLOWS (note 4)

(5.00)
(14.00)
(20.00)
(20.00)
(5.00)
2.75
3.50
3.00
(5.00)
2.75
4.00
3.50
3.00
2.75
4.50
4.00
3.00
2.75
5.00
4.50
4.00
2.75
5.50
5.00
4.50
2.75
6.00
5.50
5.00
2.75
6.50
6.00
5.50
7.00
6.50
6.00
7.50
7.00
6.50
8.00
7.50
22.50
7
6

IRR
Minimum Accepted ROR
Spread

7.8%
8.0%
0.2%

11.3%
10.0%
1.3%

11.2%
10.0%
1.2%

17.3%
12.0%
5.3%

NPV at Corp. WACC (10.6%)

1.92

0.99

0.28

5.21

NPV at Minimum ROR

0.13

1.87

0.55

Equivalent Annuity (note 2)

0.02

0.30

0.09

5
Automation
and
Conveyer
Systems

5.25
6
4
8.7%
8.0%
0.7%

37.50
5
6

32.50
6
6

5
6

3
4

5
6

21.4%
12.0%
9.4%

18.8%
12.0%
6.8%

20.5%
12.0%
8.5%

16.2%
8.0%
8.2%

28.7%
12.0%
16.7%

0.87

11.99

9.00

8.95

1.16

47.97

3.88

0.32

9.90

7.08

7.31

1.78

41.43

0.69

0.06

1.75

1.25

1.29

0.69

7.33

The effluent treatment program is not included in this exhibit.

2
The equivalent annuity of a project is that level annual payment over 10 years that yields a net present value equal to the NPV at the minimum required rate of return for that project. Annuity corrects
for differences in duration among various projects. For instance, project 5 lasts only 7 years and has an NPV of 0.32 million; a 10-year stream of annual cash flows of 0.05 million, discounted at 8.0 percent
(the required rate of return) also yields an NPV of 0.32 million. In ranking projects on the basis of equivalent annuity, bigger annuities create more investor wealth than smaller annuities.
3
This reflects ECU11 million spent both initially and at the end of year 1.
4
Free cash flow = incremental profit or cost savings after taxes + depreciation investment in fixed assets and working capital.
5
Franchisees would gradually take over the burden of carrying receivables and inventory.
6
ECU15 million would be spent in the first year, 20 million in the second, and 5 million in the third.

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Exhibit 3