Acquisition of a new piece of equipment for coca-cola

Coco-Cola has plans of acquiring a modern piece of equipment. The partnership is likely to get documentation problems under the following scenariosRiskCoca Cola would run a financial risk problem dep annuling on which source of pay they scan to use in financing this new sick. A firm any utilizes its internally generated resources or borrows from outside. However, the internal sources especially the retained earnings whitethorn be insufficient compelling Coca Cola to borrow by issuing either debentures or preference shares. Such external sources of finance give rise to fixed interest charges, lead to financial riskness that whitethorn force Coca Cola to be bankrupt. (Bower, 1990)CostThis new pouch is a capital investment and by their nature, capital investments involve mellow initial cash outleys. (www.teachmefinance.com/capitalbudgeting.html). In addition to the initial cost, Coca- Cola would alike incur huge incidental costs related with the installing of this new equipmen t these include labor and carriage costs. More some other property would be incurred in employee training on its usage . Coca Cola moreover would have to look into ways and means of getting additional funds which are essential in meeting these costs.PoliticsSome dining table members of the decision-making organ of Coca Cola may not be leisurely with this investment plan and therefore may not pass it. The end result of this decision would be that the funds may be channeled to other projects. This is because Capital projects by their nature, need prioritization be done since there may be insufficient funds of financing all the viable projects that the company might have passed.Economical FactorsThe budgeted funds to fund this new project might be insufficient due to government changes on the tax income policies and any other legislation that may be inherent deep down the government system.Cost and benefit estimatesIt is estimated that the new equipment would generate the follow ing after-tax cashflows social class before tax cash flows1. (10,000)2. 10003. 25004. 30004. 40005 70008 70009 500010 4500emailprotected%Net cash flows 16,800The initial investment is $10000(www. Swlearning.com/ monetary resource/students/capitalbgt.htm)REFERENCESJoseph L Bower, Managing the Resource Allocation Process, Harvard Business School Press, 1990.