Essay Pepsico changchun joint venture analysis

945 Words Nov 2nd, 2014 4 Pages
Case 20: PEPSICO CHANGCHUN
JOINT VENTURE
Capital Expenditure Analysis

Study Questions
Q1. Use the information in the case to construct two sets of NPV and IRR analysis from joint venture view and
Pepsico. Based on the results, what would be your decision on the proposed Changchun joint venture?
Q2. Comment on the financial projections that PepsiCo used in its capital budgeting exercise, especially the
NOPBT Cap, foreign exchange rate projection and the discount rate.
Q3. What differences might there be as to how the PRC partners do the analysis (or look at the future cash flows) versus PepsiCo?

Case Summary(案例)
In mid-June 1994, Andre Hawaux, vice-president finance for PepsiCo East Asia (PepsiCo), was about to put together the
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Bad Debt Write Off
NOPBT
NOPBT Cap @ 11%
Adjusted NOPBT
Tax Expense
NOPAT
Statutory Reserve
Net Income

Exhibit 7

Adjust NOPBT-NOPBT
NOPBT down to 11% of revenue
Compute
Adjust NOPBT-Tax Expense
Compute
NOPAT-Statutory Reserve

Results of the NPV and IRR
• Non-Cash Expenses: Exhibits 4 and 9 depreciation, amortization, the bottle and shell deposit and breakage
• Cash Outflow: Exhibit 4 and 8
Capital expenditure and increase in working capital • Terminal value(constant dividend growth model,5% growth rate): USD 55.9 million
Cash flow * (1 + growth rate) 5857 * (1 + 0.05)
Terminal value =
=
= 55,913
16% − 5% discount rate - growth rate

TN-2(NPV and IRR from Joint Venture)
Net Income
Depreciation(+)
Amortization(+)
Bottle Deposit(+)
Capital Expenditure(-)
Working Capital(-)
Net Cash Flow
Terminal Value
Net Cash Flow with TV
Discount Rate

NPV
IRR

TN-1
Exhibit 4
Exhibit 4
Exhibit 9
Exhibit 4
Exhibit 8
Compute
Compute
Compute
16%

Without TV With TV
(12868.8) (4748.8)
2.40%
12.90%

Sensitivity Analysis





Revenue growth rate
Profit margin
Exchange rate(Exhibit 6)
The timing of capital investment

How realistic are the predictions?

Other Point of View
• JV from PepsiCo’s Point of View: TN-3
- The sales of concentrate to the bottling JV
50% of COGS
- The net contribution margin of concentrate sales 17% of sales

TN-3(NPV and IRR from PepsiCo)
Net Cash Flow with TV
PepsiCo's Share of Joint Venture

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