University of Twente Student Theses


Financial valuation of new growth initiatives: Case study at Power-Packer Europa B.V.

Bramer, R. (2013) Financial valuation of new growth initiatives: Case study at Power-Packer Europa B.V.

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Abstract:The findings in this report are the result of an internal- and external research study conducted in support of the business development department of Power-Packer Europa. In light of the developing diversification strategy meant to carry the organization to more lucrative future, identifying new growth opportunities has become part of every-day business activities. From the standpoint of efficient resource allocation, the demand for an effective system to value and rank growth opportunities has become salient. This study is therefore meant to provide Power-Packer with such a system in the form of a financial valuation framework to guide investment decisions in the future. In addition, to test the validity and usefulness of the proposed system in corporate practice at Power-Packer, it is implemented in a case study of a running business development initiative. In this executive summary, the findings, conclusions and recommendations are briefly presented. It must therefore be remarked that any issues concerning the source or logic behind any findings should be sought after in the actual report. The structure of this thesis, as described in the first chapter, is roughly based on five elements; 1. An internal analysis of the organization to identify strengths and weaknesses relevant to the target market. 2. An external analysis to map out the target market in terms of size, future outlook and overall attractiveness. 3. A financial analysis to determine the theoretical input for the design of the valuation framework. 4. An implementation of the proposed framework to give an outline of the financial characteristics of the project and an estimation of overall project value. 5. An assemblage of all findings to construct overall conclusions and recommendations for any further steps in the project. The financial potential of marketing the modular Electrical Drive Unit as a cargo box lift in the global utility task vehicles industry is chosen as the case of study. The goal of this case study is to provide Power-Packer with recommendations regarding investment decisions through use of a financial framework with input from internal- and external data collection. When designing the financial framework for valuation of projects in markets similar to the case study elucidated here, the distinction is made between three factors that can have high impact on the estimations of financial value. Financial risk, concerned with cash flow volatility in relation to an investor’s required return, is addressed through applying the capital asset pricing model, which uses betas in combination with market return characteristics to value project cash flows by accounting for individual risk characteristics. Market risk, concerned with the embedded risk of fluctuations in the market environment, is addressed by exploring the input variables through a sensitivity- and a scenario analysis. Managerial flexibility, in which the proposition is made that a project’s investment life is segmented in different decision points that have a positive effect on the overall value, is included by introducing decision tree models alongside fixed cash flow statements.
Item Type:Essay (Master)
Power-Packer Europa B.V., the Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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