Welcome to Our Presentation

(Group-26)
A Case Study On
PEPSICO CHANGCHUN
JOINT VENTURE: CAPITAL
EXPENDITURE ANALYSIS
Name Roll
Fakrul Islam 15-848
Masum Ahmed Babu 15-816

Mohammad Al-Mamun 15-664
Contents
Company Overview
Swot Analysis
Pestel Analysis
Industry Analysis
Porter Five Factors
Problem Statement
Developing Alternatives
Recommendation

Company Overview:
In the 90s, China was one of the growing markets for CSD
firms.

The business model of the CSD industry is to establish strategic
bottling plants to serve industrial reginioal market.

Chanchun, one of the PepsiCos Mou Cities, was considered
to be an ideal location by the company to gain a lead over
rival CocaCola.

PepsiCo will hold the majority and assume operational
responsibilities, while the chinese partners were expected to
bring to the JV experience of the local market and established
distribution work.

SWOT ANALYSIS:
experienced management team
a competitive product line
a global marketing realm
Strengths
Weaknesses
could possibly lose focus
internal conflict problems
Opportunities
growing markets for
specialized ethnic foods and
healthier food products.
income of consumers is high
enabling them to be less price
sensitive
Threats
Pricing
quickness of technological
advances
Pestel Analysis
Political Factors: Those Non- Alcoholic Beverages like; PEPSI, are
within the food category, under the FDA (Food and Drug
Administration). The government has control over the
manufacturing procedure of these products in terms of regulations.

Economic Factors
By researching for new products is cost effective, the company
could sell its products at a lower price, so its cutomers would
purchase more PEPSICO products at a lower price.

Sociological Factors
While many cutomers are getting at older ages in life, they are more
concerned in long term increasing their permanence. That will
continue to affect the non-alcoholic beverage sector, by increasing
the demand, in healthier and other beverages.



Technological Factors
The efficiency of company's advertising, marketing and
promotional programs, The new technology advances of
television and internet that use incomparable effects for
advertising through the use of media.

Legal Factors
There are a multitude of regulatory issues involved in CSD
Industry that can dramatically affect the cost for such
projects.

Environmental Factors
The environment factors are key issue for CSDindustry. This
industry has developed a lot.

Porters five factor (TRX)
Industry Rivalry: Medium to High
Threat of Substitutes: Low to Medium
Buyer Power: Medium to High
Supplier Power: Medium to High

Threat of New Entry: Low to Medium
Problem Statement:

PEPSI COS STRATEGIC GOALS Changchun was one of their
prime target for expansion.


The proposal was for PEPSICO to control a 57.5% interest in
JV, 37.5%by the Second Food Factory AND Beijing Chong
Yin would hold the remaining five percent.




Base Case
Assumption:
Discount rate 17%
Terminal growth rate 4%
Tax( from 3rd to 5th years) 8.50%
Tax( after onwards) 20%
Withhold tax 7%
Statutory reserve 17%
NPV 9844
IRR 19%
MIRR 18.92%
Profitability index:
PV of Cash inflows
PV of Cash outflows 11698
Profitability index 0.54853856
Output:
Best Case
Assumption:
Discount rate 11%
Terminal growth rate 4%
Tax( from 3rd to 5th years) 8.50%
Tax( after onwards) 20%
Withhold tax 7%
Statutory reserve 17%
Revenues are assumed to increase by 12%
Revenues are assumed to decrease by 6%
Output:
NPV 140115
IRR 29%
MIRR 27.01%
Profitability index:
PV of Cash inflows
PV of Cash outflows 11698
Profitability index 1.090050355
Simulation(Best Case)
Statistics: Forecast values
Trials 10,000
Base Case 140115
Mean 127060
Median 125965
Mode ---
Standard Deviation 39885
Variance 1590835559
Skewness 0.1603
Kurtosis 2.84
Coeff. of Variability 0.3139
Minimum 5031
Maximum 275216
Range
Width 270185
Mean Std. Error 399
Above Average Case
Discount rate 15%
Terminal growth rate 4%
Tax( from 3rd to 5th years) 8.50%
Tax( after onwards) 20%
Withhold tax 7%
Statutory reserve 17%
Revenues are assumed to increase by 6%
Revenues are assumed to decrease by 2%
Assumption:
NPV 37166
IRR 23%
MIRR 22.11%
Profitability index:
PV of Cash inflows
PV of Cash outflows 11698
Profitability index 0.743348204
Output:
Worst case
Discount rate 18%
Terminal growth rate 2%
Tax( from 3rd to 5th years) 8.50%
Tax( after onwards) 20%
Withhold tax 7%
Statutory reserve 17%
Revenues are assumed to increase by -8%
Revenues are assumed to increase by -3%
Assumption:
Output:
NPV -10628
IRR 12%
MIRR 13.24%
Profitability index:
PV of Cash inflows
PV of Cash outflows 11698
Profitability index 0.355865314
Simulation(Worst Case)
Statistics: Forecast values
Trials 10,000
Base Case -10628
Mean -11971
Median -12101
Mode ---
Standard Deviation 4246
Variance 18027308
Skewness 0.2438
Kurtosis 2.87
Coeff. of Variability -0.3547
Minimum -22477
Maximum 8467
Range
Width 30944
Mean Std. Error 42
PCI Case
Discount rate 15%
Terminal growth rate 4%
Tax( from 3rd to 5th years) 8.50%
Tax( after onwards) 20%
Withhold tax 7%
Statutory reserve 17%
Profit in transfer price 18%
Parent' proportion 57.50%
Assumption:
Output:
NPV 13736
IRR 20%
MIRR 19.88%
Profitability index:
PV of Cash inflows
PV of Cash outflows 6726
Profitability index 0.601189807
Expected NPV & IRR Calculation
Expected Case
Assumed probability
NPV IRR
Base 35% 9844 12%
Best 15% 140115 22%
Above Average 10% 37166 0%
Worst 15% -10628 19%
PCI 20% 13736
Expected NPV 26584.87909
Expected IRR 10.29%
Recommendation:

The Project is not acceptable though the NPV is positive.
On the other hand, the IRR is less than 20% what the
Chinese partners targeted for return and the Chinese
partners would prefer immediate financial returns from the
JV.


Any Question?