Pepsico Changchun Joint Venture: Capital Expenditure Analysis: Critique

• Critically analyze and evaluate the financial projections in this case, in particular look at exhibits 7, 8 and 9

• What assumptions have the authors made in arriving at the financial projections shown in Exhibits 7, 8 and 9?

Look at the following variables, in your opinion are they correctly calculated? What adjustments if any would you make to these variables and why? Explain.

a. Discount rate used in discounting cash flows to PV

b. Sales growth rate

c. Statutory reserves

d. Cap on NOPBT

e. Bad debt write off

f. Bottle and shell breakage

g. Terminal value

h. Depreciation rate

i. US $ / Remnibi exchange rate

j. Inflation rate

k. Capital expenditures

l. Working capital

Using the adjusted variables, re do exhibits 7, 8 and 9 on Excel spreadsheet and prepare the worst case, base case and best case scenario in each case.

Based on your above analysis, will you accept or reject the Changchun JV? Explain

Will PepsiCo and the Chinese partners arrive at the same conclusion? Explain

In addition to the above financial analysis what are the long term benefits to PepsiCo for entering the Chinese market?

What are the strategic business advantages that may accrue to the Chinese companies as a result of the JV with PepsiCo?

Write a brief critique about the advantages and disadvantages of NPV and IRR methods. In your opinion which of the two methods is superior in this case, explain.

Format to use for your report:

Incorporate all of the above points in your report and format it in the following way.

1. Executive summary. One page include all the salient points including quantifying your results

2. Introduction: Explain why you are writing this report, that what is your objective, for example to calculate NPV. Also include limitations of your report, such as analysis is based on the information contained in the case.

3. Methodology: which methods did you use to solve your problem (objective) that you had identified in your introduction statement?...