Coca-Cola Corporation

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These forecast are prepared before taking into account inflation for selling price, variable cost per year and for fixed expenses per year. At the end machinery from the project will be sold for scrap. Depreciation on the initial investment is calculated instraight-line method. The Coca-Cola pays corporation tax to the government per year, one year in arrears. Likewise company has weighted average cost of capital. All percentages are shown in this table:

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Using the information above, we calculated Cash Flow. After calculating Cash Flows we have to calculate NPV of this project. NPV used to compare projects based on their expected rates of return, required investment, and anticipated revenue over time. NPV of Project E is equal to 3 040 720 927 420,82 ₸. NPV is positive so we should accept this project, according to this fact that it’s strategically important and it has positive NPV. We can be confident to that it will bring us profit. One more criteria for evaluating project is computing IRR. Internal rate of return is used to evaluate the attractiveness of a project or investment. If the IRR of a new project exceeds a company’s required rate of return, that project is desirable. If IRR falls below the required rate of return, the project should be rejected. To check it we should find negative NPV at first. IRR equal to 0 in 29%. In our case we have negative NPV (-5 254 793 255 430,85 ₸) at 70%. Our weighted average is equal to 5% criteria also.

So, It is time to submit the 2nd Project of The Coca-Cola Company.

Decades laters, The Coca-Cola Company wants to realize its old dream. The Coca-Cola claims to be the world’s leading marketer of juices and drinks, by means of acquisition of Minute Maid. Minute Maid is the company produced frozen concentrate drinks. The construction of this project will be begin immediately, and becoming operational at the beginning of the first year. All amounts of money will be shown in tenge.

The Coca-Cola has decided to invest 8.500.000.000.000 tenge for the next year new project evaluation. Company is preparing 5 projects, listed below:

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The company wants to calculate profit that reaches the fifth project in the draft. In this case, Coca-Cola company will face initial investments, if it will choose Project E.

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Each year Coca-Cola will produce 160.000.000-201.000.000 boxes of Minute Maid Juice. Box price will be starts from 23,060 KZT in the first year. Price will change during the project’s economic life. At the last year the price will be grew at 29,300 KZT.

Coca-Cola can plan their yearly budgets and goals by calculating these fixed costs in advance, because it’s a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any business activity.

Fixed cost includes monthly payment as salaries, insurance, rent and interest. The variable costs change with the output of the organization. The annual budget planning for variable costs can be critical to the success of the organization by planning as close to the variable cost as possible. Variable cost of the project include all expenses that related with production, in our case variable cost includes food, utility payments and raw materials. As Minute Maid generally have high fixed costs and lower variable costs they need to plan accordingly to ensure they hit the break-even point. When there is an increase in the production volume of the company, it will have a higher marginal profit.

These forecast are prepared before taking into account inflation for selling price = 2,23%, variable cost = 3% per year and for fixed expenses = 1,50% per year. At the end machinery from the project will be sold for scrap = 5,000,000. Depreciation on the initial investment is calculated instraight-line method. Depreciation = 17,000,000,000,000. The Coca-Cola pays corporation tax = 35% to the government per year, one year in arrears. Likewise company has weighted average cost of capital for this company equal to 5%.

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Using the information above, we calculated Cash Flow. After calculating Cash Flows we have to calculate NPV of this project. NPV used to compare projects based on their expected rates of return, required investment, and anticipated revenue over time. NPV of Project E is equal to 72 010 118 007,12 ₸ . NPV is positive so we should accept this project, according to this fact that it’s strategically important and it has positive NPV. We can be confident to that it will bring us profit. One more criteria for evaluating project is computing IRR. Internal rate of return is used to evaluate the attractiveness of a project or investment. If the IRR of a new project exceeds a company’s required rate of return, that project is desirable. If IRR falls below the required rate of return, the project should be rejected. To check it we should find negative NPV at first. IRR equal to 0 in 6%. In our case we have negative NPV(-5 756 068 777 790,72 ₸) at 65%. Our weighted average is equal to 5% criteria also.