1. Article: Find an article on climate change and its impact on the beverage industry (reputable sources include the Wall Street Journal, New York Times, Barrons, Fortune, Forbes). Provide a source for that article and state what you have learned. 2. NPV and IRR: Calculate the NPV, Internal Rate of Return (IRR), and the Modified IRR for the sustainable machine. Should Mr. Ortega authorize its purchase? Why or why not? 3. World Bank and NPV: The World Bank advocates for low discount rates (interest rates) when assessing climate change projects. Read the article and summarize the argument in one paragraph. In light of this argument, recalculate NPV using a 5% discount rate. Compare the two NPVs. 4. Free Cash Flow and Ratios: Whether Mr. Ortega purchases the machine or not, Healthy Drinks must undergo a full financial audit. Please refer to the financial statements located on the last page. Calculate the following and pull together in the table format provided below. a. Free Cash Flow and Economic Value Added for 2021 and 2020. b. The following ratios for 2021, 2020, and 2019: Current ratio, Quick ratio, Days sales outstanding, Inventory turnover, Times interest earned (TIE), Debt ratio, Return on equity (ROE), Return on Assets (ROA), and Profit margin. 5. Assess: Compare the answers you derived for Mr. Ortega to industry standards. If you worked for a bank and Mr. Ortega were to come to your bank for a loan, which financial indicators, if any, appear to be strong? Which financial indicators, if any, appear to be weak? Explain your answer. 6. Bond Financing: The bank explains that his carbon emissions project may qualify for green bond financing. Read the World Forum article on green bonds. a. Summarize the article in your own words. b. Suppose that Mr. Ortegas company can issue a 10-year green bond, priced at $850 and a coupon rate of 8%. What would be the yield to maturity of this green bond? 7. Equity Financing: Suppose Mr. Ortega is thinking about listing his company publicly. He expects the following free cash flows for the next 3 years: 50% growth in Year 1*, 50% growth in Year 2, and 50% growth in Year 3. After that, growth would fall to a constant rate (8%) thereafter. WACC is 17% and investors require at least a 20% return. a. What is the fair (intrinsic) value of Mr. Ortegas stock? b. If Goldman Sachs were to underwrite the offering and charge a 10% fee, what would be the fair price after Mr. Ortega pays the fees? *In order to find the basis for Free Cash Flow in Year 1, take the free cash flow number you calculated Problem 3a. For example, if your Free Cash Flow was $10,000 in Problem 3a (Year 2021), your Year 1 Free Cash Flow would be $10,000 (1+.50) = $15,000.

Coca-Cola, Pepsi, and other soft drink companies acknowledge that climate change is a major threat to commerce, due to its impact on water supplies. Jeffrey Seabright, Coke's vice president for environment and water resources indicated that climate change has disrupted the company's supply of sugar cane and sugar beets, as well as citrus for fruit juices. As a result of increased droughts and more unpredictability in floods and other related events, Coke is tackling new innovations to reduce the amount of carbon dioxide emissions from their products. For example, a liter of Coca-Cola creates 346 grams of carbon dioxide emissions from farm to bottler to supermarket cooler (Eaglesham \& Shifflett, 2021). Coca-Cola also recognizes the consumption of its beverages have also been linked to risks for obesity, diabetes, and heart disease. Roberto Ortega is CEO and President of Healthy Drinks, which offers a private-labeled carbonated soft drink with similar tastes, but at about half the price. Its products consist of regular cola carbonates and non-cola carbonates (lemon/lime or orange carbonates). While other soft drinks and beverages can be expensive, Ortega uses its cost savings and passes them off to consumers and customers. Healthy Drinks reports that its sustainable production processes allow for 330 grams of carbon dioxide emissions. Ortega wants to do more for the environment and lower-income customers. He recently learned that he can purchase a new piece of equipment, designed by someone he trusts, which will reduce the amount of carbon dioxide emissions to 100 grams. The equipment broker outlines the project as follows: - The new machine costs $375,000.00 with installation/modification of $81,000. - Net working capital is projected to increase by $55,000 (mainly inventory, spare parts) - The machine is expected to generated $1,000,000 in sales in Year 1 and sales will grow by 10% in Years 2 and 3. - Costs are expected to be 50% of sales - Cannibalization costs of other drinks are expected to be $22,000 per year - Depreciation is reported using the straight-lined method - At the end of three years, the machine's salvage value is projected to be $95,000 - The tax rate is 35% and the cost of capital is 17% Use this information and the past three years of financial statements located at the back of this case to answer the following questions: 1. Article: Find an article on climate change and its impact on the beverage industry (reputable sources include the Wall Street Journal, New York Times, Barron's, Fortune, Forbes). Provide a source for that article and state what you have learned. 2. NPV and IRR: Calculate the NPV, Internal Rate of Return (IRR), and the Modified IRR for the sustainable machine. Should Mr. Ortega authorize its purchase? Why or why not? 3. World Bank and NPV: The World Bank advocates for low discount rates (interest rates) when assessing climate change projects. Read the article and summarize the argument in one paragraph. In light of this argument, recalculate NPV using a 5% discount rate. Compare the two NPVs. 4. Free Cash Flow and Ratios: Whether Mr. Ortega purchases the machine or not, Healthy Drinks must undergo a full financial audit. Please refer to the financial statements located on the last page. Calculate the following and pull together in the table format provided below. a. Free Cash Flow and Economic Value Added for 2021 and 2020. b. The following ratios for 2021, 2020, and 2019: Current ratio, Quick ratio, Days sales outstanding, Inventory turnover, Times interest earned (TIE), Debt ratio, Return on equity (ROE), Return on Assets (ROA), and Profit margin. 5. Assess: Compare the answers you derived for Mr. Ortega to industry standards. If you worked for a bank and Mr. Ortega were to come to your bank for a loan, which financial indicators, if any, appear to be strong? Which financial indicators, if any, appear to be weak? Explain your answer. 6. Bond Financing: The bank explains that his carbon emissions project may qualify for green bond financing. Read the World Forum article on green bonds. a. Summarize the article in your own words. b. Suppose that Mr. Ortega's company can issue a 10-year green bond, priced at $850 and a coupon rate of 8%. What would be the yield to maturity of this green bond? 7. Equity Financing: Suppose Mr. Ortega is thinking about listing his company publicly. He expects the following free cash flows for the next 3 years: 50% growth in Year 1, 50% growth in Year 2, and 50% growth in Year 3. After that, growth would fall to a constant rate ( 8% ) thereafter. WACC is 17% and investors require at least a 20% return. a. What is the fair (intrinsic) value of Mr. Ortega's stock? b. If Goldman Sachs were to underwrite the offering and charge a 10% fee, what would be the fair price after Mr. Ortega pays the fees? "In order to find the basis for Free Cash Flow in Year 1, take the free cash flow number you calculated Problem 3a. For example, if your Free Cash Flow was $10,000 in Problem 3a (Year 2021), your Year 1 Free Cash Flow would be $10,000(1+.50)=$15,000. Eaglesham, J., \& Shifflett, S. (2021, August 11). How much carbon comes from a liter of Coke? companies grapple with climate change math. Retrieved October 23, 2022, from https://www.wsj.com/articles/climate-change-accounting-for-companies-looms-with-allits-complexities-11628608324 Coca-Cola, Pepsi, and other soft drink companies acknowledge that climate change is a major threat to commerce, due to its impact on water supplies. Jeffrey Seabright, Coke's vice president for environment and water resources indicated that climate change has disrupted the company's supply of sugar cane and sugar beets, as well as citrus for fruit juices. As a result of increased droughts and more unpredictability in floods and other related events, Coke is tackling new innovations to reduce the amount of carbon dioxide emissions from their products. For example, a liter of Coca-Cola creates 346 grams of carbon dioxide emissions from farm to bottler to supermarket cooler (Eaglesham \& Shifflett, 2021). Coca-Cola also recognizes the consumption of its beverages have also been linked to risks for obesity, diabetes, and heart disease. Roberto Ortega is CEO and President of Healthy Drinks, which offers a private-labeled carbonated soft drink with similar tastes, but at about half the price. Its products consist of regular cola carbonates and non-cola carbonates (lemon/lime or orange carbonates). While other soft drinks and beverages can be expensive, Ortega uses its cost savings and passes them off to consumers and customers. Healthy Drinks reports that its sustainable production processes allow for 330 grams of carbon dioxide emissions. Ortega wants to do more for the environment and lower-income customers. He recently learned that he can purchase a new piece of equipment, designed by someone he trusts, which will reduce the amount of carbon dioxide emissions to 100 grams. The equipment broker outlines the project as follows: - The new machine costs $375,000.00 with installation/modification of $81,000. - Net working capital is projected to increase by $55,000 (mainly inventory, spare parts) - The machine is expected to generated $1,000,000 in sales in Year 1 and sales will grow by 10% in Years 2 and 3. - Costs are expected to be 50% of sales - Cannibalization costs of other drinks are expected to be $22,000 per year - Depreciation is reported using the straight-lined method - At the end of three years, the machine's salvage value is projected to be $95,000 - The tax rate is 35% and the cost of capital is 17% Use this information and the past three years of financial statements located at the back of this case to answer the following questions: 1. Article: Find an article on climate change and its impact on the beverage industry (reputable sources include the Wall Street Journal, New York Times, Barron's, Fortune, Forbes). Provide a source for that article and state what you have learned. 2. NPV and IRR: Calculate the NPV, Internal Rate of Return (IRR), and the Modified IRR for the sustainable machine. Should Mr. Ortega authorize its purchase? Why or why not? 3. World Bank and NPV: The World Bank advocates for low discount rates (interest rates) when assessing climate change projects. Read the article and summarize the argument in one paragraph. In light of this argument, recalculate NPV using a 5% discount rate. Compare the two NPVs. 4. Free Cash Flow and Ratios: Whether Mr. Ortega purchases the machine or not, Healthy Drinks must undergo a full financial audit. Please refer to the financial statements located on the last page. Calculate the following and pull together in the table format provided below. a. Free Cash Flow and Economic Value Added for 2021 and 2020. b. The following ratios for 2021, 2020, and 2019: Current ratio, Quick ratio, Days sales outstanding, Inventory turnover, Times interest earned (TIE), Debt ratio, Return on equity (ROE), Return on Assets (ROA), and Profit margin. 5. Assess: Compare the answers you derived for Mr. Ortega to industry standards. If you worked for a bank and Mr. Ortega were to come to your bank for a loan, which financial indicators, if any, appear to be strong? Which financial indicators, if any, appear to be weak? Explain your answer. 6. Bond Financing: The bank explains that his carbon emissions project may qualify for green bond financing. Read the World Forum article on green bonds. a. Summarize the article in your own words. b. Suppose that Mr. Ortega's company can issue a 10-year green bond, priced at $850 and a coupon rate of 8%. What would be the yield to maturity of this green bond? 7. Equity Financing: Suppose Mr. Ortega is thinking about listing his company publicly. He expects the following free cash flows for the next 3 years: 50% growth in Year 1, 50% growth in Year 2, and 50% growth in Year 3. After that, growth would fall to a constant rate ( 8% ) thereafter. WACC is 17% and investors require at least a 20% return. a. What is the fair (intrinsic) value of Mr. Ortega's stock? b. If Goldman Sachs were to underwrite the offering and charge a 10% fee, what would be the fair price after Mr. Ortega pays the fees? "In order to find the basis for Free Cash Flow in Year 1, take the free cash flow number you calculated Problem 3a. For example, if your Free Cash Flow was $10,000 in Problem 3a (Year 2021), your Year 1 Free Cash Flow would be $10,000(1+.50)=$15,000. Eaglesham, J., \& Shifflett, S. (2021, August 11). How much carbon comes from a liter of Coke? companies grapple with climate change math. Retrieved October 23, 2022, from https://www.wsj.com/articles/climate-change-accounting-for-companies-looms-with-allits-complexities-11628608324