Pepsico Case

Welcome to Our Presentation (Group-26)

A Case Study On PEPSICO CHANGCHUN JOINT VENTURE: CAPITAL EXPENDITURE EXPENDI TURE ANAL ANALY YSIS

Name

Roll

Fakrul Islam

15-848

Masum Ahmed Babu

Mohammad Al-Mamun

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 PepsiCo’s 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: Strengths experienced

management team a competitive product line a global marketing realm

Opportunities growing

markets for specialized ethnic foods and healthier food products. income of consumers is high enabling them to be less price sensitive

Weaknesses could

possibly lose focus  internal conflict problems

Threats Pricing quickness of

advances

technological

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 CO’S 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 Terminal growth rate Tax( from 3rd to 5th years) Tax( after onwards) Withhold tax Statutory reserve

17% 4% 8.50% 20% 7% 17%

Output: NPV

9844

IRR

19%

MIRR

18.92%

Profitability index:

PV of Cash inflows PV of Cash outflows

11698 Profitability index

0.54853856

Best Case Assumption: Discount rate Terminal growth rate Tax( from 3rd to 5th years) Tax( after onwards) Withhold tax Statutory reserve Revenues are assumed to increase by Revenues are assumed to decrease by

11% 4% 8.50% 20% 7% 17% 12% 6%

Output: NPV

140115

IRR

29%

MIRR

27.01%


PV of Cash inflows PV of Cash outflows Profitability index

11698 1.090050355

Simulation(Best Case) Statistics: Trials Base Case Mean Median Mode Standard Deviation Variance Skewness Kurtosis Coeff. of Variability Minimum Maximum Range Width Mean Std. Error

Forecast values 10,000 140115 127060 125965 --39885 1590835559 0.1603 2.84 0.3139 5031 275216 270185 399

Above Average Case Assumption: Discount rate Terminal growth rate Tax( from 3rd to 5th years) Tax( after onwards) Withhold tax Statutory reserve Revenues are assumed to increase by Revenues are assumed to decrease by

15% 4% 8.50% 20% 7% 17% 6% 2%

Output: NPV

37166

IRR

23%

MIRR

22.11%




0.743348204

Worst case Assumption: Discount rate Terminal growth rate

18% 2%

Tax( from 3rd to 5th years) Tax( after onwards) Withhold tax Statutory reserve Revenues are assumed to increase by Revenues are assumed to increase by

8.50% 20% 7% 17% -8% -3%

Output: NPV

-10628

IRR

12%

MIRR

13.24%




0.355865314

Simulation(Worst Case) Statistics:

Forecast values

Trials

10,000

Base Case

-10628

Mean

-11971

Median

-12101

Mode Standard Deviation Variance Skewness

Kurtosis Coeff. of Variability

--4246 18027308 0.2438

2.87 -0.3547

Minimum

-22477

Maximum Range Width

8467

Mean Std. Error

30944 42

PCI Case Assumption: Discount rate Terminal growth rate Tax( from 3rd to 5th years) Tax( after onwards) Withhold tax Statutory reserve Profit in transfer price

15% 4% 8.50% 20% 7% 17% 18%

Parent' proportion

57.50%

Output: NPV

13736

IRR

20%

MIRR

19.88%




0.601189807

Expected NPV & IRR Calculation Expected Case

NPV

IRR

Assumed probability Base

35%

9844

12%

Best

15%

140115

22%

Above Average

10%

37166

0%

Worst

15%

-10628

19%

PCI

20%

13736

Expected NPV Expected IRR

26584.87909 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?

Pepsico Case

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