M4 Spreadsheet
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order_78411_191948.pptBusiness Investment Proposal
By :
Jan, 16 2017
Company Summary
- Dr. Pepper Snapple Group is a beverage company
- The beverage production is categorized into two, that is: Non-carbonated soft drinks and Carbonated soft drinks
- It key business activities involve production, marketing and supply
Dr. Pepper Snapple Group, Inc. is soft drink Company based in the United States, and it focuses on the production, marketing, and supply of soft drinks.
The company’s beverage products are categorized in two, the non-carbonated soft drinks and the carbonated beverages that are flavored.
company operates in three segments for it to be able to meet its customers’ demands.
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Cont.
- This company is made up of three Key departments
- Soft drinks concentrates department
- Packaging department
- Latin American soft drinks department
- All of these departments work interdependently to achieve mass production
The first segment, the beverage concentrates is accountable for production and sale of the carbonated beverages among other branded syrups and concentrates
The second section which is the packaging segment is responsible for production and distribution of the packaged soft drinks among other products through the direct delivery system to the retail outlets.
The third portion focuses on producing and supplying syrups, concentrates and finished soft drink products.
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Cont.
- Dr. Pepper Snapple Group Company currently holds 14.7% of market shares
- This performance places our company at third place after Pepsi-Cola
- Pepsi-Cola performs better with about 35.3% of market shares
Dr. Pepper Snapple Group, Inc. holds a market share of 14.7% positioning it in the third place after Pepsi-Cola which has 35.3% of its market share.
Dr. Pepper Snapple Group, Inc. has defined its briefcase efficiently through concentrating on their sales and marketing resources.
The company’s marketing strategy will enable the organization to focus on the various market analyses which will allow the company to identify the impact the critical brands produced and how they could improve them to gain a more significant market share
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Market Achievement Analysis
- This Company has achieved 90% success
- 80% of potential customers fully satisfied
- The least weight loss of an average is described in the market structure graph (below)
This new Investment project produces beverages that have been successful according to a recent research study. 90% of the users have been able to lose at least 15 pounds where 80% of them have been able to maintain the weight outcome. The advantage that we have is that this company has been able to secure its public relation through its success making it easier to adapt to our level of competence. The weight loss is a mark of success of achieving the zero sugar objective – that enhances the inorganic and organic beverages
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The market demand structure
Through the information gathered from the market, analysis sources show that the company expense will not be affected because the products that the targeted population need are not new products in the market. Also through the third-party distribution plan and the increase of the in-store activity contributes significantly to minimizing the cost of the advertisement.
Supplies on the other hand are more when the prices are higher. This means that it will be Wanda’s wish to make more sales at higher prices, though this is not the case in her speculations. The increase in supply at high price is disadvantaged by the decreasing demand from her products. This then leads to a condition whereby she will always be having surpluses (producing much than she should). Therefore, from this point of reasoning it is advisable that she reduces her selling price and successively increase her sales and maximize her profits at sales per unit demand rather than sales per unit price.
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Five Year Income Statement
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Sales ($) | |||||
| Beverage A | 213,721 | 359,756 | 478,992 | 697,768 | 896,755 |
| Beverage B | 290,314 | 351,074 | 467,978 | 599,654 | 901,715 |
| Total Sales | 504,035 | 710,830 | 946,970 | 1,297,422 | 1,798,470 |
| Cost of Sales | 208,714 | 390,405 | 500,750 | 703,960 | 900,000 |
| Gross Profit | 295,321 | 320,425 | 446,220 | 593,462 | 898,470 |
| Operating Cost ($) | |||||
| Advertisement | 20,500 | 20,500 | 20,500 | 20,500 | 50,000 |
| Labour | 75,000 | 75,000 | 80,000 | 85,000 | 100,000 |
| Transportation | 50,000 | 50,000 | 65,000 | 70,000 | 75,000 |
| Total Op. Cost | 145,500 | 145,500 | 165,500 | 175,500 | 215,000 |
Breakeven Analysis
IRR = (NPV) 0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n
0=937,500+937,500(1+IRR)
0=937,500+937,500+937,500IRR
0=1,875,000+937,500IRR
937,500IRR=-1,875,000
IRR=-2%
The break-even point is calculated by comparing the amount of units that have to be sold in order to cover for the fixed and variable costs. In the case of Dr. Pepper Snapple Group, Inc, the break-even point analysis will be based on the number of units that the company has to sell in order to cover for all expenses.
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Cont.
- NPV = 937,500+(75*12,500) (1-2%)
=937,500+937,500(1-0.02)
=937,500+918750
=1,856,250
- Break-even point in units= Fixed Costs/(Sales price per unit-variable cost per unit)
=$100,000/$75-$67
=$100,000/$8
=12,500 units
From the above calculation, there is an indication that the company has to take part in the production, sales and supply activities after this Investment is made. The initial investment capital is regained after the sales of 12, 500 units of beverages each of which are selling at equal sales price.
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Market Plan Analysis
- Begins with understanding the market – get to know taste and preference
- Get familiar with consumption trends – in seasons and events
- Have multiple sources of income
- Clearly identify line of production
- Project targeted population size for planning purposes
- Have a clear budget
To have an accurate and relevant marketing plan there should be a complete understanding of the market that is targeted by the business. This will help in noticing taste and preference of the potential customers. This will also help in getting familiar with the trend of consumption and which is more helpful in knowing what is consumed when? And in what quantity. This also helps in controlling surplus production that will require another facility like warehouse which increases cost of production.
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Cont.
Marketing plan needs an analysis of the strengths, weaknesses, opportunities and threats of the firm, market, industry, competition available and the immediate environment. It also needs clearly stated objectives together with the strategies to be used in achieving them. An action plan will help with the ease of flow of activities and forecasting will help in avoiding over expenditure or under expenditure which aids in controlling the whole system of marketing.
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Location Analysis
The location of a company ought to be conventional in consideration of its general business policy. Therefore, in the case where an organization yearns to take part in leadership under connectivity models, the organization has to bear in mind putting in place storage facilities and branches in areas with coherence to its management strategy and that of their potential consumers. It is advisable that every business managers together with their employees to usually have information on how to located new businesses elsewhere this will help that organization avoid null pieces of advice.
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Cost of Current Equity
Merits
Demerits
- There is no need to repay
- The risks experienced is low
- Every stock sold for different shareholders means diffusion of ownership
- It experiences greater expenses
When you use equity capital, you have no obligation to make interest payments or to repay equity investors’ initial investment. Debt capital, on the other hand, requires periodic interest payments and repayment of the borrowed principal. In general, a business that uses more equity than debt has a lower risk of bankruptcy. If a business suffers a setback and fails to make its interest payments, its creditors can force it into bankruptcy.With every share of stock you sell to investors, you dilute, or reduce, your ownership stake in your small business. Because equity investors typically have the right to vote on important company decisions, you can potentially lose control of your business if you sell too much stock.Although equity does not require interest payments, it typically has a greater overall cost than debt capital. Stockholders shoulder more risk from their perspective compared to creditors because they are last in line to get paid if the company goes bankrupt
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WACC
- Weighted Average Capital Cost
(1-Tc) x Rd x E/V x (d/v) + Re
= 8.5(1-40%) x 24.6/(24.6+82) + 82/(24.6 +82) x 13.34
=1.176 +10.26
= $11.446
Weighted average cost of capital (WACC) is the average after-tax cost of a company’s various capital sources, including common stock, preferred stock, bonds and any other long-term debt. A company has two primary sources of financing - debt and equity - and, in simple terms, WACC is the average cost of raising that money. WACC is calculated by multiplying the cost of each capital source (debt and equity) by its relevant weight, and then adding the products together to determine the WACC value.
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ROI Analysis
- Measure of Rate of Returns
- Rate of returns from a project can be measured in two different ways; by using single period calculation or by multiple period calculations. The rate of return involves the overall measurer of whether the investments made in the business are profitable or not. In this project we can measure the rate of re turns using the data in the table.
- Single period
- Return (R) = Vf - Vi ; rate of returns (r) = R/t
- Vi
- Where; Vf is the current value, that involves interest,
- Vi is the former value and t is a given period of time.
- Multiple period =
Planned susceptible access of financial data that will aid in auditing process
Develop proper marketing criteria to increase awareness and sales volume
Endorse innovation and creativity
CONCLUSION:
Generally, a proposal for a project in an organisation can be affected by both internal factors of the organisation like insufficient funds and external factors like explained briefly above. Since the above project has proved to be profitable despite the heavy investments, I qualify it for trial having studied both outcomes over time.
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Cont.
The calculation of the period of returns (PB) & the Net present Value
- Return period = Starting Input
period of flow of cash
Total Investments = $900,000
- Period of flow of cash = ($800,000/5) =$160,000
= $900,000/$160,000 = 5.626 yrs
- NPV= Total Input+ flow of cash/(1+rate of cash flow)
- = 142857.17 + 128000 + 114286 + 101910.89 + 90909.1 + 81218.3
- = 659181.46 – 400000 = $259181.46
Recommendation
- Following the above analysis, there is consideration of the fact that:
- This business proposal is likely to produce twice as much return of 2017 in after five years of Investments
- As the financial analyst and business advisor of this company, I confidently recommend the funding of the new Investment project that will cost $900,000.
- The disbursement of this cash will be done in phases depending on the project schedule to avoid elapse of cash flow.
References
Miles, J. A., & Ezzell, J. R. (2010). The weighted average cost of capital, perfect capital markets, and project life: a clarification. Journal of Financial and Quantitative Analysis, 15(03), 719-730.
Arditti, F. D., & Levy, H. (2013). The weighted average cost of capital as a cut off rate: a critical analysis of the classical textbook weighted average. Financial management, 24-34.
Pricing, I., & Tribunal, R. (2012). Weighted average cost of capital. Zimmerer, T., Scarborough, N. M., & Wilson, D. (2005). Essentials of entrepreneurship and small business management. Pearson/Prentice Hall.
Hodgetts, R. M., Kuratko, D. F., & Kuratko, D. F. (1998). Effective small business management. Fort Worth: Dryden Press.
Pratt, S. P., Reilly, R. F., & Schweihs, R. P. (2000). Valuing a business (p. 45). McGraw-Hill Companies.
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
