Hola-Kola

Antonio Ortega, the owner of Bebida Sol, a private-label carbonated soft drink company based in Mexico, was contemplating whether to invest in new zero-calorie soda product line, Hola-Kola. Through a market study, he collected some data about the potential market size and the costs associated with this new product line. Along with these data was also the concern that the new product line might severely erode his existing regular soda sales. He needed to determine if this capital investment was worth making and would create value for his company. Please answer all the questions in the case (if any) and the following questions:

What are the relevant cash flows? In the capital budgeting analysis of this low-price, low-calorie soda project, how shall we treat:

The consultants market study cost?

The potential rental value of the unoccupied annex?

The interest charges?

Working capital?

Should be consider the erosion of the existing product the regular soda-in the analysis? Why or why not?

Calculate the projects payback period, NPV, IRR, MIRR, profitability index.

Perform sensitivity analyses on sales volume, direct labor, materials, and energy cost. What do you observe?

What are the benefits and risks of undertaking this project?

Should Bebida Sol undertake this project?