the portfolio of projects in the Queensland Food Corp case and prepare a project charter using the template provided. As you learned in Unit 2, there are a variety of projects (efficiency, market extension, new product, compliance, and new markets). Choose one that resonates with most members of your group.
For charter content information not available in the case study, your group (using brainstorming and research by the support group members), develop your best ideas of what the paragraph would include so that it addresses all of the required content contained in the template.
Content: (90 points) The charter should be at least 2, but not more than 3 pages (excluding the key stakeholder list). Each of the 13 sections will be evaluated for completeness and quality (i.e., realistic content) as it relates to the project selected. Your group can make some assumptions about content in each paragraph where information is not available in the case.
At least 5 key stakeholders must be identified.
Your Instructor will use Turn-it-in to ensure your paper is authentic work. To avoid plagiarism, see the course home page for more information and use the Purdue Online Writing Lab (Links to an external site.) to learn how to paraphrase, summarize and cite the references you use in all academic writing assignments.
Mechanics (10 points) It is expected that the charter will have excellent mechanics (presentation, grammar and spelling) exhibit the quality of work capable of a group of graduate students and working professionals. All sections of the charter must be readable at 100% magnification.
Submit your charter to link below.
A strategy for completing this assignment
Read the project description and meet as a group to discuss gaps in information. After discussion, assign each person to research missing information for each section. Some sections of the charter, such as “overall project risk” will require you to read up on the topic.
The PMBOK 6e is the primary reference recommended for completing this assignment.
Each group member should write a draft of each section using a collaborative document (e.g., Office365 cloud-based MS Word). Don’t overweight one paragraph at the expense of other paragraphs with respect to how much content each contains. Two to 3 pages will require you to think critically about what content to include versus what is not high- or summary-level.
After drafts of all questions are complete, everyone should meet to walk through and discuss the results before finalizing the charter.
CASE: Queensland Food Corp
In early January 2003, the senior-management committee of Queensland Food Corp was to meet to draw up the firm’s capital budget for the new year. Up for consideration were 11 major projects that totaled over $20.8 million. Unfortunately, the board of directors had imposed a spending limit of only $8.0 million; even so, investment at that rate would represent a major increase in the firm’s asset base of $65.6 million. Thus the challenge for the senior managers of Queensland Food Corp was to allocate funds among a range of compelling projects nominated for consideration.
Queensland Food Corp, headquartered in Brisbane, Australia, was a producer of high-quality ice cream, yogurt, bottled water, and fruit juices. Its products were sold throughout two states (Queensland, New South Wales) and two territories (ACT and Northern Territory). (See Exhibit 1 for map of the company’s marketing region.)
Exhibit 1 – Queensland Food Corp, located in Australia
Queensland Food Corp sales had been static since 2000 (see Exhibit 2), which management attributed to low population growth in Northern Territory and market saturation in some areas. Outside observers, however, faulted recent failures in new-product introductions.
Exhibit 2 – Summary of Financial Results (millions AUD except per share amounts)
End of Fiscal Year
2000 2001 2002
Gross Sales $100.8 $100.7 $100.8
Net Income 5.1 4.9 3.7
Dividends 2.0 2.0 2.0
Earnings Per Share 0.85 0.82 0.66
Shareholders’ Equity (Book Value) 18.2 20.6 23.5
Shareholders’ Equity (Market value) 45.3 39.0 22.9
Total Assets 47.7 58.0 65.6
Most members of management wanted to expand the company’s market presence and introduce more new products to boost sales.
The capital budget at Queensland Food Corp was prepared annually by a committee of senior managers who then presented it for approval by the board of directors. The committee consisted of five managing directors, the president Chief Executive (CEO), and the chief finance officer (CFO). Typically, the CEO solicited investment proposals from the managing directors. The proposals included a brief project description, a financial analysis, and a discussion of strategic or other qualitative consideration.
As a matter of company policy, investment proposals at Queensland Food Corp were subjected to two financial tests, payback and internal rate of return (IRR). Financial tests were considered hurdles and had been established in 2001 by the management committee and varied according to the type of project:
Exhibit 3 -Company Policy for Project Approval
Project Type Minimum Acceptable IRR Maximum Acceptable Payback (Years)
At the conclusion of the most recent meeting of the directors, the board voted unanimously to limit capital spending in 2003 to $8.0 million.
Exhibit 4 – Project Proposals
Project ID Project Description Cost (Millions) Project Type
1 Distribution Truck Fleet Replacement/Expansion 2.2 Efficiency (or Expansion)
2 New Plant Construction 3.0 Market Extension
3 Existing Plant Expansion 1.0 Market Extension
4 Fat Free(!) Greek Yogurt/Ice Cream Development/Introduction 1.5 New Product
5 Plant Automation and Conveyor System 1.4 Efficiency
6 Wastewater Treatment (4 plants) 0.4 Environmental Compliance
7 Market Expansion West (Western Territory) 2.0 New Market
8 Market Expansion South (Victoria) 2.0 New Market
9 Snack Food Development/Introduction 1.8 New Product
10 Computer-based Inventory Control System 1.5 Efficiency
11 Bundaberg Rum Acquisition 4.0 New Product
The cost of this plant would be $2.5 million and would entail $500,000 for working capital. The $1.4 million worth of equipment would be amortized over seven years, and the plant over ten years. Through an increase in sales and depreciation, and decrease in delivery costs, the plant was expected to yield after-tax cash flows totaling $2.4 million and an IRR of 11.3 percent over the next ten years. This project would be classified as a market extension.
The Cairn’s plants capacity could be expanded by 20 percent for $1.0 million. The equipment ($700,000) would be deprecated over seven years, and the plant over ten years. The increased capacity was expected to result in additional production of up to $150,000 per year, yielding an IRR of 11.2 percent. This project would be classified as a market extension.
$1.5 million would be needed to commercialize a yogurt line that had received promising results in consumer and production tests. This cost included acquiring specialized production facilities, working capital, and the cost of the initial product introduction. The overall IRR was estimated to be 17.3 percent.
Jones stressed that the proposal, although highly uncertain in terms of actual results, could be viewed as a means of protecting present market share, because other high-quality ice-cream producers carrying out the same research might introduce these products; if the HooRoo Cakes brand did not carry a fat free line and its competitors did, the HooRoo Cakes brand might suffer. This project would be classed in the new-product category of investments.
Each alternative geographical expansion had its benefits and risks. If the company expanded southward, it could reach a large population with a great appetite for frozen dairy products, but it would also face more competition from local and state ice cream manufacturers. The southward expansion would have to be supplied by facilities in ACT and New South Wales, at least initially.
Looking to the west, consumers in Western Territory have substantial purchasing power due to the explosion in the mining industry, but the population is significantly less than in the southward expansion geographical area. Expansion to the west would require building consumer demand and planning for future plants to produce products in Western Territory. Expansion to the west would need to be supplied by rail from Darwin facilities and further redistribution truck fleet.
The initial cost for each proposal was $2 million in working capital. The bulk of the costs were expected to involve the financing of distributorships, but over the ten-year forecast period, the distributors would gradually take over the burden of carrying receivables and inventory. Both expansion proposals assumed the rental of suitable warehouse and distribution facilities. The after-tax cash flow was expected to be $3.75 million for southward expansion and $2.75 million for westward expansion. Dell’Orco pointed out that southward expansion meant a higher possible IRR but that moving westward was a less risky proposition. The projected IRRs were 21.4 percent and 18.8 percent for southward and westward expansion, respectively. These projects would be classed in the new market category.
Equipment and working capital invests were expected to total $1.5million and $300,000, respectively, for this project. The equipment would be depreciated over seven
able to support further plant expansions in other strategic locations. The IRR expected to be 20.5 percent, well above the IRR required for new product projects (12 percent).
The proposal was expensive: $1.5 million to buy the company and $2.5 million to renovate the company’s facilities completely while simultaneously expanding distribution to new geographical markets. The expected returns were high: after-tax cash flows were projected to be $13.4 million, yielding an IRR of 28.7 percent. This project would be classed in the new-product category of proposals.
Each member of the management committee was expected to come to the meeting prepared to present and defend a proposal for the allocation of Queensland Food Corp’s capital budget of $8.0 million. Exhibit 3 summarizes the various projects in terms of their free cash flows and the investment-performance criteria.
Exhibit 5 – Free Cash Flow and Analysis of Proposed Projects (Note 1) ($ millions AUD)
Project 1.Distribution Truck Fleet Replacement/ Expansion(Note 3) 2.New Plant Construction 3.Existing Plant Expansion 4.Yogurt/ Ice Cream Development/ Introduction 5.Plant Automation 7.Market Expansion (Western Territory) 8Market Expansion South (Victoria) 9Snack Food Development/ Introduction 10Computer-based Inventory Control System 11Bundaberg Rum Acquisition (Note 5)
Property 2.0 2.5 1 1.5 1.4 0 0 1.5 1.5 3.0
Working Capital 0.20 0.50 0 0 0 2.0 2.0 0.30 0 1.0
Year Expected Free Cash Flow (Note 4)
0 -1.14 -3.0 -1.0 -0.50 -1.4 -2.0 -2.0 -1.8 -1.2 -1.5
1 -0.79 0.20 0.125 -0.50 0.275 0.35 0.3 0.3 0.55 -2.0
2 0.30 0.50 0.150 -0.50 0.275 0.4 0.35 0.4 0.55 0.50
3 0.35 0.55 0.175 0.3 0.275 0.45 0.4 0.45 0.50 0.90
4 0.40 0.60 0.20 0.3 0.275 0.5 0.45 0.50 1.1
5 0.45 0.63 0.225 0.4 0.275 0.55 0.5 0.50 1.3
6 0.50 0.65 0.25 0.45 0.275 0.6 0.55 0.50 1.5
7 0.70 0.675 0.15 0.5 0.275 0.65 0.6 0.50 1.7
8 0.50 0.15 0.55 0.7 0.65 0.50 1.9
9 0.53 0.15 0.6 0.75 0.7 0.50 2.1
10 0.55 0.15 0.65 0.8 0.75 0.50 5.9
Undiscounted Sum 0.77 2.375 0.725 2.25 0.525 3.75 3.25 2.85 0.4 13.4
Payback (Years) 6 6 6 7 6 5 6 5 3 5
Max Payback Accepted 4 6 5 5 4 6 6 6 4 6
IRR 7.8% 11.3% 11.2% 17.3% 8.7% 21.4% 18.8% 20.5% 16.2% 28.7%
Min Accepted ROR 8.0% 10.0% 10.0% 12.0% 8.0% 12.0% 12.0% 12.0% 8.0% 12.0%
NPV at Corp WAAC (10.5%) -0.192 0.099 0.028 0.521 -0.087 1.199 0.900 0.895 0.116 4.79
NPV at Min ROR -0.013 0.187 0.055 0.388 0.032 0.990 0.071 0.731 0.178 4.143
Equivalent Annuity (Note 2) -0.002 0.030 0.009 0.069 0.006 0.175 0.125 0.129 0.069 0.733
1Project Number 6 not included
2Equivalent Annuity is that level of equal payments over 10 years that yields a NPV at the minimum required rate of return for that project. It corrects for differences in duration among various projects. In ranking projects based on EA, larger annuities create more investor wealth than smaller annuities.
3Reflects $1.1 million spent initially and at end of year 1
4Free cash flow = incremental profit or cost savings after taxes + depreciation – investment in fixed assets
5$1.5 million would be spent in year one, $2.0 million in year two, and 0.5 million in year 3.
Case Study Questions (100 points)
a. Which NPV of those shown in Exhibit 5 should be used? Why?
b. Using all NPV forms presented in Exhibit 5, rank the projects.
c. Since the wastewater treatment project is a cost of doing business, it does not have a NPV. Suggest a way to evaluate the effluent project.
d. List the projects that would be funded or unfunded using the financial analysis (include Project 6 in your list)
Based on the paper by Englund and Graham (1999), Chapter 2 (Kloppenborg (2017)) and the case information,
a. Use a scoring model to evaluate and select projects (pp. 45-47, Kloppenborg):
i. List and define potential criteria
ii. List and define those criteria that are mandatory (i.e., screening) criteria
iii. Weight the remaining criteria using an AHP process
b. Which projects were screened from further consideration in part 2a, ii?
c. Rank order the remaining projects based on the group analysis.
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