CHOCOLAT CORDON-ROUGE (CCR)

Free Cash Flows by Project

Euros, Millions

Project 1 2 3 4 5

Increase "Green" /
Capacity at Capacity Carbon
Build U.S. Enter LATAM current site Expansion for Footprint
Factory (Uruguay) (Brittany) "Chocafe" Reduction
Total Investment 55.00 37.50 14.50 6.50 10.00

EXPECTED FREE CASH FLOWS

Year
0 -55.00 -37.50 -14.50 -6.50 -10.00
1 3.00 0.40 1.74 1.05 2.05
2 5.80 0.90 4.94 1.33 2.05
3 12.00 1.75 4.94 1.33 2.05
4 14.50 3.80 4.94 1.33 2.05
5 17.50 7.40 4.94 1.33 2.05
6 21.30 9.20 4.94 1.33 2.05
7 26.30 16.10 4.94 1.33 2.05
8 29.10 20.40 4.94 1.33 2.05
9 29.60 22.60 4.94 1.33 2.05
10 29.60 22.60 17.14 1.33 2.05

Undiscounted Sum (years 1-10) 133.70 67.65 43.90 6.48 10.50

Project WACC 10.0% 12.5% 7.0% 10.0% 12.5%

 6 7

Greening Purchase New

Chinese Machinery from (1) French
Production Bankrupt Plant Regular
Plant Competitor CF
8.20 29.50

-8.20 -29.50 72.50

0.75 0.00 76.13
0.75 5.85 79.93
1.35 5.85 83.93
1.35 5.85 88.12
1.35 5.85 92.53
1.55 5.85 97.16
2.25 5.85 102.01
2.25 5.85 107.12
2.25 5.85 112.47
0.08 5.85 118.09

5.73 23.15

12.5% 10.0%
TIPS LEVEL 1

1 The Cash Flows you were given in the Data worksheet were prepared by the Project Managers.
Therefore, what are the relevant Cash Flows for your analysis? The Project Cash Flows or the I

2 Your analysis should be based on the relevant Cash Flows, so please adjust the Cash Flows giv

3 If there were no budget constraint in the company, which projects should you recommend? A

4 Which projects should you recommend with the €75M budget? You need to look for the proje
e Project Managers. However, you are now in the shoes of the Company CFO.
Cash Flows or the Incremental Cash Flows at Company level?

the Cash Flows given in the Data worksheet whenever needed prior to running any NPV or IRR computation.

ou recommend? All the value-creatingprojects are acceptable.

o look for the project combination that will max up the total value created.
NPV or IRR computation.
Cash flows including cannibalization and opportunity cost of land

Project 1 2 3 4 5 6 7

Purchase
New
Machinery
Increase Capacity "Green" / Greening from
Enter Capacity at Expansion Carbon Chinese Bankrupt
Build U.S. LATAM current site for Footprint Productio Competito
Factory (Uruguay) (Brittany) "Chocafe" Reduction n Plant r
Total Investment 55.00 37.50 14.50 6.50 10.00 8.20 29.50

EXPECTED FREE CASH FLOWS

Year
0 -55.00 -37.50 ? -6.50 -10.00 -8.20 -29.50
1 3.00 0.40 1.74 1.05 2.05 0.75 0.00
2 5.80 0.90 4.94 1.33 2.05 0.75 5.85
3 12.00 1.75 4.94 1.33 2.05 1.35 5.85
4 ? 3.80 4.94 1.33 2.05 1.35 5.85
5 ? 7.40 4.94 1.33 2.05 1.35 5.85
6 ? 9.20 4.94 1.33 2.05 1.55 5.85
7 ? 16.10 4.94 1.33 2.05 2.25 5.85
8 ? 20.40 4.94 1.33 2.05 2.25 5.85
9 ? 22.60 4.94 1.33 2.05 2.25 5.85
10 ? 22.60 17.14 1.33 2.05 0.08 5.85

Undiscounted Sum (years 1-10) -34.20 67.65 58.40 6.48 10.50 5.73 23.15

Project WACC 10.0% 12.5% 7.0% 10.0% 12.5% 12.5% 10.0%

NPV

IRR
(1) French Plant
Regular CF

72.50
76.13
79.93
83.93 Due to the sales cannibalization in the French plant, what are the relevant cash flows to
88.12
92.53 If this project is undertaken, the land that will not be sold in Year 0: the company will m
97.16
102.01
107.12
112.47
118.09

NPV to be computed for every project

IRR to be computed for every project

e relevant cash flows to compute the NPV and IRR of this project?

ar 0: the company will miss the cash inflow from the land sale so what is the relevant cash flow to compute the NPV and IRR of this proje
he NPV and IRR of this project?
Cash flows including cannibalization and opportunity cost of land

Project 1 2 3 4 5 7

Purchase
New
Machinery
Increase Capacity "Green" / from
Enter Capacity at Expansion Carbon Bankrupt
Build U.S. LATAM current site for Footprint Competito
Factory (Uruguay) (Brittany) "Chocafe" Reduction r
Total Investment 55.00 37.50 14.50 6.50 10.00 29.50

EXPECTED FREE CASH FLOWS

Year
0 -55.00 -37.50 -37.00 -6.50 -10.00 -29.50
1 3.00 0.40 1.74 1.05 2.05 0.00
2 5.80 0.90 4.94 1.33 2.05 5.85
3 12.00 1.75 4.94 1.33 2.05 5.85
4 4.37 3.80 4.94 1.33 2.05 5.85
5 6.86 7.40 4.94 1.33 2.05 5.85
6 10.13 9.20 4.94 1.33 2.05 5.85
7 14.57 16.10 4.94 1.33 2.05 5.85
8 16.78 20.40 4.94 1.33 2.05 5.85
9 16.67 22.60 4.94 1.33 2.05 5.85
10 16.02 22.60 17.14 1.33 2.05 5.85

Undiscounted Sum (years 1-10) 51.19 67.65 21.40 6.48 10.50 23.15

Project WACC 10.0% 12.5% 7.0% 10.0% 12.5% 10.0%

NPV $3.04 $5.61 $0.91 $1.39 $1.35 $1.13

IRR 11.0% 14.7% 7.4% 14.7% 15.8% 10.8%

Solution 1: Checking all possible combinations

Budget 75

Project number
1 2 3 4 5 7

Combination Included (1=yes, 0=no)

Number
1 0 0 0 0 0 1
 2 0 0 0 0 1 0
3 0 0 0 0 1 1
4 0 0 0 1 0 0
5 0 0 0 1 0 1
6 0 0 0 1 1 0
7 0 0 0 1 1 1
8 0 0 1 0 0 0
9 0 0 1 0 0 1
10 0 0 1 0 1 0
11 0 0 1 0 1 1
12 0 0 1 1 0 0
13 0 0 1 1 0 1
14 0 0 1 1 1 0
15 0 0 1 1 1 1
16 0 1 0 0 0 0
17 0 1 0 0 0 1
18 0 1 0 0 1 0
19 0 1 0 0 1 1
20 0 1 0 1 0 0
21 0 1 0 1 0 1
22 0 1 0 1 1 0
23 0 1 0 1 1 1
24 0 1 1 0 0 0
25 0 1 1 0 0 1
26 0 1 1 0 1 0
27 0 1 1 0 1 1
28 0 1 1 1 0 0
29 0 1 1 1 0 1
30 0 1 1 1 1 0
31 0 1 1 1 1 1
32 1 0 0 0 0 0
33 1 0 0 0 0 1
34 1 0 0 0 1 0
35 1 0 0 0 1 1
36 1 0 0 1 0 0
37 1 0 0 1 0 1
38 1 0 0 1 1 0
39 1 0 0 1 1 1
40 1 0 1 0 0 0
41 1 0 1 0 0 1
42 1 0 1 0 1 0
43 1 0 1 0 1 1
44 1 0 1 1 0 0
45 1 0 1 1 0 1
46 1 0 1 1 1 0
47 1 0 1 1 1 1
48 1 1 0 0 0 0
 49 1 1 0 0 0 1
50 1 1 0 0 1 0
51 1 1 0 0 1 1
52 1 1 0 1 0 0
53 1 1 0 1 0 1
54 1 1 0 1 1 0
55 1 1 0 1 1 1
56 1 1 1 0 0 0
57 1 1 1 0 0 1
58 1 1 1 0 1 0
59 1 1 1 0 1 1
60 1 1 1 1 0 0
61 1 1 1 1 0 1
62 1 1 1 1 1 0
63 1 1 1 1 1 1

Solution Method 2: Using the Profitability Index

Profitability
Project Investment NPV
index

1 55.00 3.04 0.06

2 37.50 5.61 0.15

3 14.50 0.91 0.06

Reordering by
4 6.50 1.39 0.21 PI
5 10.00 1.35 0.13

6 29.50 1.13 0.04

7 8.20 -0.97 -0.12

 6

Greening Chinese (1) French Plant

Production Plant Regular CF
8.20

-8.20 72.50
0.75 76.13
0.75 79.93
1.35 83.93
1.35 88.12
1.35 92.53
1.55 97.16
2.25 102.01
2.25 107.12
2.25 112.47
0.08 118.09

5.73 1,029.99

12.5%

($0.97)

9.9%

Feasible
Investment NPV
1=yes, 0=no

29.50 1 1.13
 10.00 1 1.35
39.50 1 2.48
6.50 1 1.39
36.00 1 2.52
16.50 1 2.74
46.00 1 3.87
14.50 1 0.91
44.00 1 2.04
24.50 1 2.26
54.00 1 3.38
21.00 1 2.30
50.50 1 3.43
31.00 1 3.65
60.50 1 4.78
37.50 1 5.61
67.00 1 6.74
47.50 1 6.96
77.00 0
44.00 1 7.01
73.50 1 8.13
54.00 1 8.35
83.50 0
52.00 1 6.52
81.50 0
62.00 1 7.87
91.50 0
58.50 1 7.91
88.00 0
68.50 1 9.26
98.00 0
55.00 1 3.04
84.50 0
65.00 1 4.39
94.50 0
61.50 1 4.44
91.00 0
71.50 1 5.79
101.00 0
69.50 1 3.95
99.00 0
79.50 0
109.00 0
76.00 0
105.50 0
86.00 0
115.50 0
92.50 0
 122.00 0
102.50 0
132.00 0
99.00 0
128.50 0
109.00 0
138.50 0
107.00 0
136.50 0
117.00 0
146.50 0
113.50 0
143.00 0
123.50 0
153.00 0

Project Investment NPV Profitability Aggregate

index investment
4 6.50 1.39 0.21 6.50 ✔
2 37.50 5.61 0.15 44.00 ✔
5 10.00 1.35 0.13 54.00 ✔
3 14.50 0.91 0.06 68.50 ✔
1 55.00 3.04 0.06 68.50 ✖
6 29.50 1.13 0.04 68.50 ✖
7 8.20 -0.97 -0.12 68.50 ✖
Sales cannibalization > Need to reduce the forecasted cash flows

Opportunity cost of land that will not be sold in Year 0 because of this project

Project 6 carries a negative NPV - it will never be part of any combination of projects to be taken up

Max NPV 9.26

✔

✖
Questions for automatic grading

Please follow this format for the numbers you are going to enter:
- absolute values: enter numbers in million€ with 2 decimals, the "." as a decimal separator, the "-" for negative num
- percentages: enter the percentage sign, plug in 1 decimal, use the "." character as a decimal separator (e.g. plug in

Points granted only if the answer given is fully correct, otherwise no point granted (example in Q1: if I answer only options a
All questions are worth 1 point, except question 19 which is really challenging and is worth 2 points

Q1 The cash flows of the project to build a factory in the US must be adjusted. Why?
a. The relevant cash flows for project evaluation are the incremental cash flows (cash flow gaps whether the project is
b. If the company undertakes this project, not only will it generate additional cash in the US, but it will also generate le
c. The potential cash output decrease of the Brittany plant is caused by the US factory project.

Q2 The cash flows of the project to expand capacity in the Brittany plant must be adjusted. Why?
a. Would the company not undertake this project, it would sell the land and hold €22.5 million more.
b. Not selling the land represents an opportunity cost for the company.
c. The cash flow of year 10 includes the inflow due to the asset sale.

Q3 In which of the following ways should the Year 0 cash flow of the project to expand capacity at the Brittany plant be adju
a. It must be increased by €22.5 million.
b. It must be decreased by €22.5 million.

Q4 What is the Net Present Value of the project to build a factory in the US?
3.04

Q5 What is the Net Present Value of the project to enter Latin America?
5.61

Q6 What is the Net Present Value of the project to expand capacity at the existing Brittany plant?
0.91

Q7 What is the Net Present Value of the project to expand Chocafe operations?
1.39

Q8 What is the Net Present Value of the project to reduce the company's carbon footprint?
1.35

Q9 What is the Net Present Value of the project to 'green' the Chinese plant?
-0.97

Q10 What is the Net Present Value of the project to buy the equipment of a bankrupt competitor?
1.13

Q11 What is the Internal Rate of Return of the project to build a factory in the US?
11.0%
Q12 What is the Internal Rate of Return of Project 2: enter Latin America?
14.7%

Q13 What is the Internal Rate of Return of Project 3: expand capacity at the existing Brittany plant?
7.4%

Q14 What is the Internal Rate of Return of Project 4: expand Chocafe operations?
14.7%

Q15 What is the Internal Rate of Return of Project 5: reduce the company carbon footprint?
15.8%

Q16 What is the Internal Rate of Return of Project 6: green the Chinese plant?
9.9%

Q17 What is the Internal Rate of Return of Project 7: buy the equipment of a bankrupt competitor?
10.8%

Q18 If there were no budget constraint, which projects would you recommend?
a. Project 1: build a factory in the US
b. Project 2: enter Latin America
c. Project 3: expand capacity at the existing Brittany plant
d. Project 4: expand Chocafe operations
e. Project 5: reduce the company carbon footprint
f. Project 6: green the Chinese plant
g. Project 7: buy the equipment of a bankrupt competitor

Q19 Which projects would you recommend with the €75M budget?
a. Project 1: build a factory in the US
b. Project 2: enter Latin America
c. Project 3: expand capacity at the existing Brittany plant
d. Project 4: expand Chocafe operations
e. Project 5: reduce the company carbon footprint
f. Project 6: green the Chinese plant
g. Project 7: buy the equipment of a bankrupt competitor
 arator, the "-" for negative numbers and no thousand separator
a decimal separator (e.g. plug in 14.1% if you mean 14.12% or 21.5% if you mean 21.45%)

le in Q1: if I answer only options a and c, I get 0 point ; if I answer options a, b and c, I get 1 point)

h flow gaps whether the project is undertaken or not).

the US, but it will also generate less cash in Brittany.

.5 million more.

pacity at the Brittany plant be adjusted?