Case Name :      Pepsico Changchun Joint Venture: Capital Expenditure Analysis

Authors :           Geoff Crum, Larry Wynant, Claude P. Lanfranconi, Peter Yuan

Source :             Ivey Publishing

Case ID :            900N16

Discipline :        Finance

Case Length :    15 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

Pepsico, Inc. spanned more than 190 countries and accounted for approximately one-quarter of the world’s soft drinks. The vice president of finance for Pepsico East Asia had been collecting data on the firm’s proposed equity joint venture in Changchun, People’s Republic of China (PRC). Although Pepsico was already involved in seven joint ventures in the PRC, this proposal would be one of the first two green-field equity joint ventures with Pepsico control over both the board and day-to-day management. Every investment project at Pepsico had to go through a systematic evaluation process that involved using capital budgeting tools, such as new present value and internal rate of return. The vice president of finance needed to decide whether the proposed Changchun joint venture would meet Pepsico’s required return on investment. He was also concerned what the local partners would think of the project. The final decision would be made after a presentation to the president of Pepsico Asia-Pacific.