Indiana State University Hola Kola Finance Case Study

Description

FINANCE Case Study – Hola-Kola – up to 5 students per team (DUE: 04/16)
Anjelina Belakovskaia
No unread replies.No replies. 
Students were randomly enrolled into 5-student teams on Canvas / People.
If you didn’t do it just yet – go to: https://hbsp.harvard.edu/import/1026855
Create an Account by clicking Register Now (click here for a how to guideLinks to an external site.)
Purchase each case/article/reading and start reading.
Communicate with the team.
Focus on Qualitative and Financial Analyses.
Use Excel for calculations.

Submit a 5-7 page Team report/analysis/recommendations AND your Excel file here. Due date – 04/16.
Also, each student should record a brief video and post it in the same thread.

QUALITATIVE ANALYSIS:

Factors and considerations that would support strategic investment in the new Hola-Kola product line.

Benefits, Risks, and uncertainties associated with such investment.
The arguments against investing in the new Hola-Kola product line.
FINANCIAL ANALYSIS:
What are the relevant cash flows in evaluating this project?
Use Excel to calculate:
 NPV;
 IRR;

 Payback Period;
 Discounted Payback Period;
 Profitability Index. 
Run the scenario analysis, with the following 3 scenarios: 
 Scenario 1 => The analysis you have already done.
 Scenario 2 => You have been advised by the consultants that the energy costs, labor costs, and material costs are likely to rise by 5% a year, starting in Year 2. The consultants do not think that you can pass the extra cost through. What do you observe?

 Scenario 3 => You have been advised by the consultants that the energy costs, labor costs, and material costs are likely to rise by 5% a year, starting in Year 2. The consultants think that you can pass the part of the extra cost through. You should be able to increase the price per unit by 5%, but the volume will decrease by 2%. What do you observe?
Valuations Comparison: Assign probabilities to each scenario (total 100%). How the shift in probabilities will impact your decision? What can you learn from the scenario analysis?
Consider sensitivity and breakeven analysis. Are they needed/important? Why or why not? What can you learn from them?

Conclusions: Should Bebida Sol invest in the new Hola-Kola product line? Please provide a supporting explanation.
SUGGESTED QUESTIONS:
Assess the numerous cash flows associated with this project and consider where and how they should be reported:

 the consultant’s market study cost.
 the potential rental value of the unoccupied annex.
 the interest charges;

 working capital.
Should the erosion of the existing product (the regular sodas) be considered in the analysis? Support your opinion.Hola Kola – The Valuation of the Zero-Calorie Soda Project
(Prepared by Professor Lena Booth)
NPV (pesos)
IRR
Payback Period (Years)
Discounted Payback Period (Years)
Profitability Index
Scenario 1
Monthly Sales (units)
Increase (Decrease) in Sales Volume
Unit Sale Price (pesos)
Increase (Decrease) in Sales Price
Unit Raw Material Cost (pesos)
Increase (Decrease) in Raw Material Costs
Monthly Labor Costs (pesos)
Increase (Decrease) in Direct Labor Costs
Monthly Energy Costs (pesos)
Increase (Decrease) in Energy Costs
Year
Cost of New Equipment (pesos)
Resale Value of Equipment (pesos)
Less Taxes
Net Resale Value of Equipment (pesos)
Working Capital Requirements (pesos)
Receivables ((Sales/365)*Avg Collection Period)
Inventories (One month materials costs)
Payables ((Material Costs/365)*Avg Pmt Period)
Total Working Capital Requirements (pesos)
Change in Working Capital Requirements (pesos)
Annual Sales (Units)
Annual Sales Revenue (pesos)
Operating Expenses (pesos)
Raw Material Costs
Direct Labor Costs
Energy Costs
Building Rental (Opportunity Costs)
Depreciation
General Administrative and Selling Expenses
Overhead Expenses
Total Operating Expenses (pesos)
Operating Profit Before Tax (pesos)
Taxes (pesos)
Operating Profit After Tax (pesos)
Project’s Operating Cash Flow (pesos)
Depreciation (pesos)
Erosion of Existing Sales (pesos)
Total Operating Cash Flow (pesos)
Project’s Free Cash Flow (pesos)
Cumulative FCF (pesos)
Present Value of Cash Flow (pesos)
Cumulative PV of CF (pesos)
Cost of New Equipment (pesos)
Resale Value of Equipment (pesos)
% Overhead to Sales
Building Rental (pesos)
Average Collection Period (Days)
Average Payment Period (Days)
Years of Straight-line Depreciation
Cost of Capital
Tax Rate
Erosion (pesos)
0%
0%
0%
0%
0%
0
1
2
3
4
5
Hola Kola – The Valuation of the Zero-Calorie Soda Project
(Prepared by Professor Lena Booth)
NPV (pesos)
IRR
Payback Period (Years)
Discounted Payback Period (Years)
Profitability Index
Scenario 2
Monthly Sales (units)
Increase (Decrease) in Sales Volume
Unit Sale Price (pesos)
Increase (Decrease) in Sales Price
Unit Raw Material Cost (pesos)
Increase (Decrease) in Raw Material Costs
Monthly Labor Costs (pesos)
Increase (Decrease) in Direct Labor Costs
Monthly Energy Costs (pesos)
Increase (Decrease) in Energy Costs
Year
Cost of New Equipment (pesos)
Resale Value of Equipment (pesos)
Less Taxes
Net Resale Value of Equipment (pesos)
Working Capital Requirements (pesos)
Receivables ((Sales/365)*Avg Collection Period)
Inventories (One month materials costs)
Payables ((Material Costs/365)*Avg Pmt Period)
Total Working Capital Requirements (pesos)
Change in Working Capital Requirements (pesos)
Annual Sales (Units)
Annual Sales Revenue (pesos)
Operating Expenses (pesos)
Raw Material Costs
Direct Labor Costs
Energy Costs
Building Rental (Opportunity Costs)
Depreciation
General Administrative and Selling Expenses
Overhead Expenses
Total Operating Expenses (pesos)
Operating Profit Before Tax (pesos)
Taxes (pesos)
Operating Profit After Tax (pesos)
Project’s Operating Cash Flow (pesos)
Depreciation (pesos)
Erosion of Existing Sales (pesos)
Total Operating Cash Flow (pesos)
Project’s Free Cash Flow (pesos)
Cumulative FCF (pesos)
Present Value of Cash Flow (pesos)
Cumulative PV of CF (pesos)
Cost of New Equipment (pesos)
Resale Value of Equipment (pesos)
% Overhead to Sales
Building Rental (pesos)
Average Collection Period (Days)
Average Payment Period (Days)
Years of Straight-line Depreciation
Cost of Capital
Tax Rate
Erosion (pesos)
0%
0%
4%
4%
4%
0
1
2
3
4
5
Hola Kola – The Valuation of the Zero-Calorie Soda Project
(Prepared by Professor Lena Booth)
NPV (pesos)
IRR
Payback Period (Years)
Discounted Payback Period (Years)
Profitability Index
Scenario 3
Monthly Sales (units)
Increase (Decrease) in Sales Volume
Unit Sale Price (pesos)
Increase (Decrease) in Sales Price
Unit Raw Material Cost (pesos)
Increase (Decrease) in Raw Material Costs
Monthly Labor Costs (pesos)
Increase (Decrease) in Direct Labor Costs
Monthly Energy Costs (pesos)
Increase (Decrease) in Energy Costs
Year
Cost of New Equipment (pesos)
Resale Value of Equipment (pesos)
Less Taxes
Net Resale Value of Equipment (pesos)
Working Capital Requirements (pesos)
Receivables ((Sales/365)*Avg Collection Period)
Inventories (One month materials costs)
Payables ((Material Costs/365)*Avg Pmt Period)
Total Working Capital Requirements (pesos)
Change in Working Capital Requirements (pesos)
Annual Sales (Units)
Annual Sales Revenue (pesos)
Operating Expenses (pesos)
Raw Material Costs
Direct Labor Costs
Energy Costs
Building Rental (Opportunity Costs)
Depreciation
General Administrative and Selling Expenses
Overhead Expenses
Total Operating Expenses (pesos)
Operating Profit Before Tax (pesos)
Taxes (pesos)
Operating Profit After Tax (pesos)
Project’s Operating Cash Flow (pesos)
Depreciation (pesos)
Erosion of Existing Sales (pesos)
Total Operating Cash Flow (pesos)
Project’s Free Cash Flow (pesos)
Cumulative FCF (pesos)
Present Value of Cash Flow (pesos)
Cumulative PV of CF (pesos)
Cost of New Equipment (pesos)
Resale Value of Equipment (pesos)
% Overhead to Sales
Building Rental (pesos)
Average Collection Period (Days)
Average Payment Period (Days)
Years of Straight-line Depreciation
Cost of Capital
Tax Rate
Erosion (pesos)
-2%
5%
4%
4%
4%
0
1
2
3
4
5

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