1.Coca-Cola Company, in its effort to establish a larger presence in the beverage market, is considering the acquisition of a small company that produces a drink called "Rain Kombucha." After acquired, the new business is expected to have a net after-tax cash flow of $8 million at the end of its first year of operation. After that its cashflows are expected to grow at a rate of 3% per year and forever. The investment required to buy the company is $60 million, which is paidtoday.

a.If the return expected by Coca-Cola Company shareholders is 11% (the discount rate), should they undertake the project? Please show clearly how you arrived at your conclusion.

Please explain and show how to solve in Excel. I think I am using the wrong formulas.

b.The board of directors is doubtful about the rate of growth, which they consider be too optimistic. What is the minimum rate of growth required to invest in the project?

Please explain and show how to solve in Excel. I think I am using the wrong formulas.

c.The managers were subsequently made aware of market studies suggesting that the cost structure of these fermentedtypeofbeveragescanbeunderestimatedandtherefore,concludedthattheannualcashflowshouldbe revised downward to $6.5 million. Given this information, should they take the project?

Please explain and show how to solve in Excel. I think I am using the wrong formulas.

d.If you come to the conclusion that the NPV is zero or slightly negative, why might Coca Cola still prefer to undertakethisinvestmentproject?[Hint:wetalkedaboutthisyesterday,inthecontextofvaluationmodelsnot always capturing everything that is valuable.]

Please explain and show how to solve in Excel. I think I am using the wrong formulas.

2.A local bank is offering a special loan to new customers. You can borrow $1,000 today, and pay back $1,015 one year from today. However, you also notice that another local bank is offering to pay 2% on deposits. There is a profit (arbitrage) opportunity here. Describe how you would exploit it.

Please explain and show how to solve in Excel. I think I am using the wrong formulas.

3.

a.You are the CFO of grocery chain that has constant free cash flow (FCF) of $1,000,000 per year. You currently are considering engaging in a price war with a competitor grocery firm. The price war will cause your firm's cash flows to drop to $800,000 next year (cash flows realized one year from today), and as the price war intensifies, to $650,000 the following year (two years from today). Thereafter, you expect to have knocked out your competitor - think Airbus's attempt to knock out Boeing - and afterward, to receive a permanent 5% bump in cash flows, relative to today, starting three years from now (t=3) and beyond forever. If your firm uses a discount rate of 10% for all of its activities, determine whether the price war makes sense, or not.

Please explain and show how to solve in Excel. I think I am using the wrong formulas.

b.Your CEO doesn't think a price war is a good idea. Rather, she wants toraise prices. This will have the opposite impact on your cash flows, relative to a cutting them. Specifically, you will make more money in the short run, but as customers eventually migrate to cheaper competitors, your long run cash flows will suffer as you lose market share. If you raise prices, cash flows over the next two years will be $1,250,000 (both at the end of t=1 and t=2), but will drop permanently to $950,000 in year t=3 and afterward. Using a discount rate of 10%, what is the NPV of the CEO's proposed price-raising project?

Please explain and show how to solve in Excel. I think I am using the wrong formulas.

c.Given your answers to (a) and (b), what should you do?