1. What are the relevant cash flows? In the capital budgeting analysis of the low-price, zero-calorie carbonated soft drink project discussed in the case, how shall we treat:

a. The consultants market study cost?

b. The potential rental value of the unoccupied annex?

c. The interest charges?

d. Working capital?

2. Should we consider the erosion of the existing product the regular soda in this capital budgeting analysis? Why or why not?

3. Calculate the projects NPV, IRR, payback period, discounted payback and profitability index.

4. Perform sensitivity analysis on your calculations done in question 3:

a. Scenario 1: You have been advised by the consultants that the energy costs, the labor costs, and the material costs are likely to rise by 5% a year, starting in Year 2. The consultant do not think you can pass the extra cost though.

b. Scenario 2: You have been advised by the consultants that the energy costs, the labor costs, and the material costs are likely to rise by 5% a year, starting in Year 2. The consultants think you can pass part of the extra cost though. You should be able to unit price per unit by 5%, but the volume would decrease by 2%.

5. Should Bebida Sol undertake this project? Discuss based on your groups analysis.