PepsiCo, Inc. spread over more than 190 nations and represented roughly one-quarter of the globe’scola beverages. The VP of finance for PepsiCo East Asia had been gathering information on the company's proposed value joint entrepreneurial project in Changchun, People's Republic of China (PRC). Despite the fact that Pepsico was at that point included in seven joint ventures in the PRC, this proposition would be one of the initial two green-field equity joint endeavors with PepsiCo control over both the board and regular administration. Each investment oriented venture at PepsiCo needed to be assessed using capital budgeting tools, such as new present value and internal rate of return. The VP of account was required to determine if the proposed Changchun joint endeavor would meet PepsiCo's set goals of profitability. He was additionally concerned what the nearby accomplices would think about the venture. An official choice would be made after a presentation to the president of PepsiCo Asia-Pacific.
1. Use the information in the case to construct two sets of NPV and IRR analysis on the proposed Changchun bottling joint venture:
a. One set excluding the concentrate sales,
b. The other set including the concentrate sales.
Based on the results, what would be your decision on the proposed Changchun joint venture?
2. Comment on the financial projections that PepsiCo used in its capital budgeting exercise, especially the Net Operating Profit Before Tax (NOPBT) Cap, foreign exchange rate projection and the discount rate.
3. What differences might there be as to how the PRC partners do the analysis (or look at the future cash flows) versus PepsiCo?