Business 3019, Winter 2006

Case 4
Questions to Answer

1. (20 points) Compute the cash flows expected to be generated by the Pepsico Changchun
Joint Venture and calculate the NPV and IRR of the project. Do not take into account
the concentrate sales from Pepsico here. Use the initial assumptions (this is the base
case).

2. (20 points) Do a sensitivity analysis of the joint venture’s NPV with respect to COGS
and bad debt write off. Show your results on a graph.

3. (20 points) Calculate the project’s NPV and IRR in the following two cases: (i) A
best-case scenario where all revenue projections are 15% higher than the base case and
where bad debt write off is 1% of credit sales, and (ii) a worst-case scenario where all
revenue projections are 15% lower than expected and where bad debt write off is 5%
of credit sales.

4. (20 points) Calculate the NPV of the project when concentrate sales from Pepsico are
included.

5. (5 points) Is the project good? Explain.