PepsiCo Changchun Joint Venture: Capital expenditure Analysis: case

9B00N016: Critique; Summer 2016: APS 1016

Case to be done in groups of 3 or 4 students. Case report due: July 6 th
2016
Some useful tips for this case analysis

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 SeePDFpg5 1st Para. Not
16%, 20%
b. Sales growth rate
c. Statutory reserves
d. Cap on NOPBT
e. Bad debt write of
f. Bottle and shell breakage
g. Terminal value
h. Depreciation rate
i. US $ / Renminbi 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. See Chapter
11 p291
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.
See Chapter 9
Format to use for your report:
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Incorporate all of the above points in your report and format it in the following way.
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Executive summary. One page include all the salient points including
quantifying your results
Introduction: Explain why you are writing this report that is 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.
Methodology: which methods did you use to solve your problem (objective)
that you had identified in your introduction statement? This section would
contain analysis of information.
Conclusions: What conclusions did you arrive at from your analysis?
Recommendations and future action: Here simply state your
recommendations, for example we recommend that his project should be
undertaken. In future action section you may wish to suggest how for
example the company may change its strategy to deliver greater shareholder
value.

General pointers about business report writing.

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Be brief
Avoid speculations. Make sure your argument makes logical sense
Write in clear concise English, avoid flowery language
Wherever possible illustrate your argument with charts and diagrams
Make sure your report flows, that is make sure one idea is linked to the next
in a sequential manner
6 Check for grammar and spelling
7 The report must contain table of contents and page numbers
8 Break the report into paragraphs
9 Use 12 font and double spaced
10 Leave sufficient white space and margins in your report
11 Make sure your report is stapled and ideally put it in a ring binder, to give it a
professional look