Ligers Hola Kola Case Discussion
Ligers Hola Kola Case Discussion
Free cash flows based on the information in the case were -51,080,000 2in year zero, 16,174,000 in year one through four, and 20,054,000 in year five. These cash flows gave us an NPV of 952,264.52, IRR of 19%, and payback of 4.95 years.
For our sensitivity analysis we analyzed to change to NPV based on changes in estimates to WACC, tax rates, sales volume, price, and cannibalization. NPV was used because it is the most effective decision rules and highlights the sensitivity in monetary terms.
Adjusting the WACC to account for 100% debt financing at 16% increased NPV to 3,725,744.05. If the company decided to use 100% equity financing at 18.75% NPV would decrease to 294,566.29. At 50/50 debt/equity NPV increases to 1,964,949.71.
IF tax rates decrease to 25% NPV increases to 2,411,807.30. If tax rates increase to 35% NPV decreases to -507,278.26.
If Sales volume decreases 10% to 540,000, NPV decreases to -6,982,638.62. A 20% decrease in sales volume to 480,000 results in a decrease in NPV to -16,480,853.57. No sensitivity analysis for an increase in sales volume was calculated because of production limit of 600,000.
If price is decreased to 4 NPV decreases to -14,580,643.70. If price is increased to 6 NPV increases to 16,485,172.74.
If cannibalization decreases to 700,000 units NPV increases to 1,710,178.49. If Cannibalization increases to 900,000 NPV decreases to 734,350.54.
Free cash flows based on the information in the case were -51,080,000 2in year zero, 16,174,000 in year one through four, and 20,054,000 in year five. These cash flows gave us an NPV of 952,264.52, IRR of 19%, and payback of 4.95 years.
For our sensitivity analysis we analyzed to change to NPV based on changes in estimates to WACC, tax rates, sales volume, price, and cannibalization. NPV was used because it is the most effective decision rules and highlights the sensitivity in monetary terms.
Adjusting the WACC to account for 100% debt financing at 16% increased NPV to 3,725,744.05. If the company decided to use 100% equity financing at 18.75% NPV would decrease to 294,566.29. At 50/50 debt/equity NPV increases to 1,964,949.71.
IF tax rates decrease to 25% NPV increases to 2,411,807.30. If tax rates increase to 35% NPV decreases to -507,278.26.
If Sales volume decreases 10% to 540,000, NPV decreases to -6,982,638.62. A 20% decrease in sales volume to 480,000 results in a decrease in NPV to -16,480,853.57. No sensitivity analysis for an increase in sales volume was calculated because of production limit of 600,000.
If price is decreased to 4 NPV decreases to -14,580,643.70. If price is increased to 6 NPV increases to 16,485,172.74.
If cannibalization decreases to 700,000 units NPV increases to 1,710,178.49. If Cannibalization increases to 900,000 NPV decreases to 734,350.54.