PGDBM 2010/1

You are provided with selected Financial Information in Appendix A and Appendix B. QUESTION 1 Using the financial statements and literature you were provided with for study (and any other market and company information you have researched) (a) (i) Critically evaluate Coca Colas recent performance based on its: short-term liquidity b) Investment ratios c) operating efficiency d) profitability
a)

You must state any assumptions you have made. The average Market Share Price was $ 57.83 in 2009 (Inventory is the US word for stock) Critically appraise changes in the Companys performance in the above areas, based on your evaluation. (12 marks) (b) Critically evaluate the extent to which Coca Colas current financial outcomes contribute to meeting its commitment to the profit and productivity areas of the Companys 2020 vision statement (6 marks) (c) Critically appraise the strategic financial options Coca Cola has used for global growth and appraise the those options in terms of suitability and risks to the business (12 marks) TOTAL 30 MARKS QUESTION 2 Critically evaluate Coca Colas management of the performance of its tangible and intangible resources as demonstrated by its strategy planning (including 2020 vision). You should focus on the (critical evaluation of) following areas:
(a) Two important interventions to identify key processes/activities to reduce or

reengineer processes so that the effectiveness or efficiency of its use of resources is enhanced (6 marks) (b) One key area where it benchmarked its products, services, processes or performance against what is considers to be best practice to either make cost savings or to deliver enhanced value (6 marks) (c) Its performance in managing intangibles such as its brand image, patents, goodwill. (8 marks) TOTAL 20 MARKS

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QUESTION 3 (a) Critically appraise the effectiveness of Coca Colas Treasury Management with respect to: (i) Managing working capital and liquidity (ii) Management of the organisations overall financial resources (iii) Generating information for management reporting (iv) Managing financial risk on a global basis (18 Marks)
(b) Assess the relative importance of: (i) techniques used by Coca Cola to manage the critical risks to its success (ii) preparation and use of risk management reports (7 Marks)

Your responses must be supported by evidence from the literature QUESTION 4 AXY is one of Coca Colas manufacturing outsourcers that produces components for Coca Cola Enterprises. It produces these components using machine technology but this is rather outdated and the company is having difficulty adjusting the machine technology to the large variety of different components for Coca Cola and other trade names which it needs to satisfy. The company is considering fully automating production and investing in a flexible manufacturing system (sometimes known as Advanced Manufacturing Technology or AMT). The technology would be computer-integrated and capable of much greater flexibility to meet the variable and ever changing needs of the market. The cost of installing the AMT would be US$33million. The accountant has calculated that there will be an increase in annual sales of $20million, earning a gross margin of 30%. There would also be savings in labour costs of $3million each year. The weighted average cost of capital of AXY is 14% and investments require a positive NPV and payback of three years. The new technology is expected to have a life of five years. Using this data the accountant has appraised this new project as follows: Payback ($20million x 30%) + $3million = $9million x 3 years = $27million NPV: $9million x 5 year annuity at 14% (3.433) = $30.897million The project therefore fails both investment criteria and the accountant is arguing that the investment should not proceed. Required: (a) Critically evaluate the project appraisal used by XYZ and discuss the difficulties of capital appraisal of AMT projects. (12 marks) (b) Explain the attributes and strategic benefits of AMT to XYZ which were not considered by the accountant in the appraisal of the AMT proposal, and discuss how
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these may be incorporated into the project appraisal. (13 marks) (Total 25 marks)

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