CASE: Hola Kola

 What are the backgrounds of the investment environment and the soda market in Mexico
 Cash flows.
 Problem?
 Why HOLA Kola case had been written
 Importance of sensitivity scenario and breakeven analysis
 Decision effect?
 Risk and benefits?
 Project accept or reject?
 Market Study?
 Potential Projects/ cash flows?
 Existing products why deviating from them

Project compare
IRR is greater than WACC then you will accept the project otherwise reject it.
What are the backgrounds of the investment environment and the soda market in Mexico
Background of case:
Small Privately owned Soda company in Mexico
In Mexico Obesity increases a lot
They applied tax on cola rate is 20% imposed
USA 31 gallons
Only in Mexico 43 Gallons
Tax increase price increase demand less
Tax will be used for health benefits

Market Leaders
 Coca cola
 Pepsi
 Pepper
 Grupo
All combine have 90% market share
Total Revenue of Soda Market in Mexico: $39.2 Bn
10% of $39.2 Bn = $3.92Bn
Charging high prices by market leaders

Low Prices will target: poor segment.

Sales increases 80 million in 1998 to 900 Million in 2011
Economic crisis in Mexico shift low cost drink
 Why Hola Kola
Characteristics:
Regular Carbonated drink
Non Carbonated Drinks
Low price
Lower Income segment target
Zero Calories

The Proposal:
Hola Kola

Risk associated with Hola Kola

Target low income Group
Target only on the basis of price but not with the problem of obesity.
Awareness
Existing plan are running at full capacity
New Investment is of 50 Million.
Taste Risk link with local real example in Islamabad/ Pakistan
Also have same characteristics like of Hola Kola
PESPSI MAX 5 years ago
R&D
Product Design
Capital Investment

Lower Price associated with any Risk in future?

Future Prices increase.
Capital Budgeting Techniques:
WACC : 18.2%
Cash flows:

 Summary
 Problems
 Risk along with associated local examples
 Benefits
 Cash flows and Capital Budgeting Techniques
 Conclusion draw that whether to accept HOLA Kola or Reject HOLA KOLA
Assignment next Monday before class
A/c Receivables: A/c Receivable turnover
A/c Payable : Average Payment Period