KATHMANDU UNIVERSITY

SCHOOL OF MANAGEMENT

Project Conceptualization and Planning

ASSIGNMENT

SUBMITTED TO:
Bipin Chhetri
(Course Instructor)

SUBMITTED BY:
AYUSNAB KARKI
Roll No.: 22508
EMBA

Submitted on:
6th June 2023
Case Facts:
Mona vie Food Industries, an Indian company specializing in breakfast cereals, is facing challenges
such as quality defects, increasing competition, and a sluggish sales growth rate of 3%. With a target
of achieving 15% average growth per year over the next five years, the company's current strategy
focuses on broad differentiation and consolidating their existing competencies. To address these
challenges and drive growth, they are considering three projects for the coming year: Project A
(Sikkim), Project B (New Flavor), and Project C (UK).

 Project A aims to expand their product line in the domestic market, specifically targeting
Sikkim.
 Project B involves introducing a new differentiated product within the existing line for the
domestic market,
 While Project C aims to develop a new product for a different segment in the UK market.
Financial projections indicate potential benefits over a four-year period for each project. However, a
controversy exists within the organization regarding whether growth by differentiation should
prioritize the domestic market or seize the opportunity in the foreign market. The company's current
cost of capital stands at 13%.
Q.No.1 On the basis of strategic and financial evaluation, which project will you recommend?
And Why?
Prepare the weighted evaluation matrix-i.e. Weighted Scoring Model as practice by considering
following criteria. (Strategic and financial combined- 20% wt. from strategic analysis and 80% wt. from
financial analysis)
Strategic evaluation is a crucial process that involves thoroughly analyzing and assessing a
company's overall strategy, performance, and effectiveness. It encompasses a detailed examination of
an organization's strategic goals, plans, and implementation to determine how well they align with
the broader objectives. By conducting a strategic review, businesses can identify areas for
improvement, enhance their performance, and achieve desired outcomes. This evaluation analysis is
based on specific criteria used to evaluate the company's strategic initiatives in detail, providing a
comprehensive understanding of its current standing and the need for any necessary adjustments or
changes.
Based on the criteria provided to analyze strategically, the strategic evaluation analysis is done below.
Criteria Score (1-10)
Project A Project B Project C
i. Is the project supportive to the organizational strategy? 7 8 9
ii. Does the project stay within the existing core competencies? 9 9 7
iii. How urgent is the project? 8 8 7
iv. Project’s ability to generate additional sales? 7 9 9
v. Degree of uniqueness of the project output? 7 8 8
Total 38 42 40

The scores assigned to each criterion in the strategic evaluation analysis were based on a subjective
assessment of the provided information. The criterion of supporting the organizational strategy
considered the extent of alignment with growth by broad differentiation and consolidation of current
 competency. Based on the total scores, Project B (New Flavor) received the highest score of 42,
indicating it is the most strategically favorable option among the three projects. It demonstrates strong
support for the organizational strategy, stays within existing core competencies, has a high ability to
generate additional sales, and offers a relatively unique project output. Project C (UK) closely follows
with a score of 40, also showing favorable strategic alignment and potential for sales growth. Project
A (Sikkim) received the lowest score of 38, indicating it may have slightly weaker strategic alignment
and potential sales impact compared to the other projects.
Strategic Evaluation Analysis by Equal Weighted Scoring Model:
Strategic Evaluation Matrix
Criteria Weight (%) Score (1-10)
Project Score Project Score Project Score
A B C
i. Is the project supportive to the 25 20 7 8.75 8 10 9
11.25
organizational strategy?
ii. Does the project stay within 25 20 9 11.25 9 11.25 7 8.75
the existing core competencies?
iii. How urgent is the project? 15 20 8 6 8 6 7 5.25
iv. Project’s ability to generate 20 20 7 7 9 9 9 9
additional sales?
v. Degree of uniqueness of the 15 20 7 5.25 8 6 8 6
project output?
Total 100 100 38 38.25 42 42.25 40 40.25
In the above equal weightage for the individual criteria is assigned (20%) and the score is calculated.
Based on the calculation of the score, project B with score of 42.25 is the highest. Thus, the project B
should be accepted.
Financial Evaluation:
Financial evaluation involves analyzing a company's financial data to assess its viability, profitability,
and overall financial performance. It is crucial for making informed decisions about resource
allocation, investment opportunities, and financial planning. By examining various financial metrics
and indicators, such as profitability ratios, liquidity ratios, and growth rates, a comprehensive
assessment can be made. Based on the information provided in the case, a financial evaluation was
conducted in Excel, and the results are presented in the table below.
Pay
Project Benefit- Back
Project cost Total cash cost Period
Name (Year 0) Year I Year II Year III Year IV inflows NPV IRR ratio
A
(Sikkim) -410,000 140,120.88 145,142.29 159,456.35 172,999.07 617,718.59 44,283.3005 17.91% 1.51 2.78

B (New
Flavor) -800,000 265,540.85 262,141.84 308,677.45 318,222.71 1,154,582.85 49,388.3197 15.83% 1.44 2.88

-
C (UK) 1,050,000 315,264.44 347,502.14 435,142.44 449,399.56 1,547,308.58 78,340.9331 16.31% 1.47 2.89
From the given table we can see that NPV of the Project C has the highest value which is INR.
78340.9331, followed by project B and Project A. Similarly looking for the IRR, Project A has the
highest IRR with 17.91% followed by Project C (16.31%) and Project B (15.83%). Similarly,
calculating benefit-cost ratio project A has highest 1.51 times followed by project C 1.47 times and
Project B 1.44 times. And lastly calculating Payback period, Project A has lowest, Project B and Project
C respectively.
On the basis of strategic and financial evaluation (Strategic and financial combined- 20% wt. from
strategic analysis and 80% wt. from financial analysis)

Projects Strategic Strategic Financial Evaluation Total

Evaluation Evaluation NPV Adjusted NPV
(20%) NPVwhich is (80%)
divided by 1000
A (Sikkim) 38.25 7.65 44,283.3005 44.283 35.42 43.07
B (New Flavor) 42.25 8.45 49,388.3197 49.388 39.51 47.96
C (UK) 40.25 8.05 78,340.9331 78.340 62.672 70.72

In conclusion while comparing strategic and financial evaluation conducted for projects A, B, and C,
it is recommended that project C be implemented by the company. The evaluation process involved
assigning weightage to both strategic (20%) and financial (80%) factors. For the strategic evaluation,
individual scores were assigned to each project based on criteria such as organizational strategy
alignment, core competency utilization, urgency, ability to generate additional sales, and degree of
uniqueness. These scores were then combined to determine the strategic evaluation score.
For the financial evaluation, the Net Present Value (NPV) was used as the primary criterion. The NPV
values were adjusted to double digits by dividing by 1000. This adjusted NPV was given a weightage
of 80% in the overall evaluation. By summing up the strategic and financial evaluation scores, project
C emerged with the highest total score of 70.72 when compared to projects A and B. This indicates
that project C has a stronger strategic and financial potential. Implementing project C would offer the
advantage of developing new competencies, and the company aims to win the competition by creating
a unique design and flavor specifically attractive to the UK customers. Overall, considering the
combined strategic and financial evaluation, project C is the recommended choice due to its higher
score and potential for growth and success.
Q.No. 2 If you have to suggest different cost of capitals to the above three projects as per the
scenario provided in the case, how would you suggest, Explain? And also shoe your calculations
how your choice of projects will be different based on your recommended COCs?
To suggest different costs of capital (COCs) for the three projects (A, B, and C), we need to consider
the risk profile and the specific characteristics of each project. The COC reflects the required return on
investment based on the project's riskiness. Based on the provided scenario and considering the risk
profiles of the projects, the following COCs are suggested:
Project A (Sikkim): COC: 12%:
Project A involves expanding the existing product line in the domestic market, which is relatively low-
risk compared to venturing into new markets or introducing new products. A COC of 12% reflects the
lower risk associated with this project.
For example, if we calculate the Net Present Value (NPV) for Project A using a 12% discount rate, the
projected cash flows over the four-year period can be discounted, and the NPV can be determined. A
positive NPV indicates that the project is expected to generate more value than the initial investment.
Project B (New Flavor) - COC: 14%: Project B introduces a new differentiated product within the
existing domestic market. It carries a moderate level of risk due to uncertainties in market acceptance
and potential competition. Therefore, a COC of 14% is suggested to reflect the moderately higher risk
associated with this project.
For example, recalculating the NPV for Project B using a 14% discount rate will provide insights into
the project's profitability. The higher COC will result in a higher discounting of cash flows, which may
lead to a slightly lower NPV compared to Project A.
Project C (UK) - COC: 15%: Project C involves developing a new product for a foreign market (UK),
which comes with higher risks such as market unfamiliarity and regulatory challenges. To compensate
for these risks, a COC of 15% is recommended.
For instance, when determining the NPV of Project C using a 15% discount rate, the cash flows
projected for the four-year period will be discounted accordingly. The higher COC will have a greater
impact on the NPV calculation, potentially resulting in a lower NPV compared to the other projects.
By assigning different COCs to each project, the financial evaluations, such as NPV, profitability
index, and IRR, will vary. The choice of projects may differ based on the revised financial metrics. It
is crucial to conduct a thorough analysis, considering the suggested COCs, to make informed decisions
about resource allocation and project viability.
Calculations of New NPV on the basis of new COCs:

Project Benefits (INR)

Project
Project Cost of cost
Name Capitals (Year 0) Year I Year II Year III Year IV NPV
A
(Sikkim) 12% -410,000 140,120.88 145,142.29 159,456.35 172,999.07 54,256.3904
B (New
Flavor) 14% -800,000 265,540.85 262,141.84 308,677.45 318,222.71 31,402.0808
-
C (UK) 15% 1,050,000 315,264.44 347,502.14 435,142.44 449,399.56 29,963.4086

On the basis of strategic and financial evaluation (Strategic and financial combined- 20% wt. from
strategic analysis and 80% wt. from financial analysis)

Projects Strategic Strategic Financial Evaluation Total

Evaluatio Evaluatio NPV Adjusted NPV
n n (20%) NPVwhich is (80%)
divided by 1000
A (Sikkim) 38.25 7.65 54,256.3904 54.256 43.41 51.06
B (New Flavor) 42.25 8.45 31,402.0808 31.402 25.12 33.57
C (UK) 40.25 8.05 29,963.4086 29.4086 23.97 32.02
Based on the individually assigned COCs of 12% for Project A, 14% for Project B, and 15% for Project
C, the corresponding Net Present Values (NPVs) were calculated. Project A (Sikkim) yielded the
highest NPV of 51.06. This indicates that the present value of expected cash inflows from Project A,
discounted at a 12% rate over the four-year period, exceeds the initial investment cost. Therefore,
Project A is expected to generate a positive return and create value for the company. Similarly, Project
B (New Flavor) yielded an NPV of 33.57 and Project C (UK) yielded the lowest NPV of 32.02 among
the three projects. T, Project A appears to be the most financially viable option with the highest NPV.
However, it's important to consider other factors such as strategic alignment, market potential, and the
company's capabilities when making a final decision on project selection. The financial evaluation is
just one aspect to consider in the overall decision-making process.