INT 620 Milestone Three Guidelines and Rubric: Global Expansion Financing
Overview: For this first milestone, due in Module Seven, you will complete Section 3: Global Expansion Financing, which will outline how you will secure funding
for the corporation you have chosen for your final project. This section will include information about available local financing, parent company contribution,
and any additional financing the company will use for its global expansion.
Prompt: First, review the annual financial statements (Form 10-K) for your selected company. You can either retrieve the statements from the webpage SEC
EDGAR Company Filings or directly from the company’s website, often listed under “Investor Information.” Second, review the Module Seven resources, which
provide helpful links to financing information.
Finally, complete the Final Project Milestone Three section in the Final Project Template. The paper should outline the current capital structure for the selected
parent company and the funding details for the new foreign subsidiary. You will need to research the potential sources of funding and determine how best to
finance the expansion. Be sure to analyze the capital structure of the new company for debt financing, stock issue financing, or using retained earnings from the
parent company.
Specifically, the following critical elements must be addressed:
Section 3: Global Expansion Financing
A. Analyze the current capital structure of the parent company. This should be done using the current annual statements.
B. Determine the funding your corporation should secure for this expansion into a global market. For example, you need to determine if the
company will finance its expansion by using debt, issuing new stock, or using retained earnings of its expansion. Look at the current capital
structure and use it as a guide for the subsidiary structure.
C. Analyze the financing of the new expansion. Consider financial requirements and how foreign currency will be acquired. Since the company will
need to have foreign currency (currency of the country it is expanding into) on hand from day one of the company operations, determine how it
will obtain the foreign currency. What are the options of local financing—including any regulations on local currency reserves?
Be sure to refer to the Module Seven resources, additional course materials, and your own research to support your responses. Incorporate instructor feedback
on this milestone into your final project, the global expansion proposal.
Rubric
Guidelines for Submission: This milestone should be submitted as a Word document, 2–3 pages in length, double-spaced, using 12-point Times New Roman
font, one-inch margins, and the latest edition of the APA manual for formatting and citations.
Critical Elements
Section 3: Capital Structure
Proficient (100%)
Analyzes the current capital structure of
the parent company
Needs Improvement (70%)
Analyzes the current capital structure of
the parent company, but analysis is
cursory or lacks important details
Not Evident (0%)
Does not analyze the current capital
structure of the parent company
Value
30
Section 3: Funding
Section 3: Financing
Articulation of Response
Determines the funding the corporation
should secure for this expansion into a
global market
Analyzes the financing of the new
expansion
Submission has no major errors related to
citations, grammar, spelling, syntax, or
organization
Determines the funding the corporation
should secure for this expansion into a
global market, but response is cursory or
lacks important details
Analyzes the financing of the new
expansion, but analysis is cursory or lacks
important details
Submission has major errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main ideas
Does not determine the funding the
corporation should secure for this
expansion into a global market
30
Does not analyze the financing of the new
expansion
30
Submission has critical errors related to
citations, grammar, spelling, syntax, or
organization that prevent understanding
of ideas
Total
10
100%
Running head: THE COCA-COLA EXPANSION PLAN
The Coca-Cola Expansion Plan
Southern New Hampshire University
INT 620
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THE COCA-COLA EXPANSION PLAN
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Introduction: Company Selection
The aim is to expand the market of Diet Coke in both domestic and international
market. The company selected is The Coca-Cola Company. It is an American multinational
beverage industry having more than 500 non-alcoholic beverage brands. It has its headquarter
located in Atlanta, Georgia, the U.S. The Coca-Cola Company is responsible for producing
concentrated syrup which is then distributed to various manufacturers across the world. The
company is selected because it is a publicly traded company and listed in the NYSE. Also,
the financial statement is listed with the SEC. Since, The Coca-Cola Company is a publicly
traded company where financial capital can be raised, which can then be used for R&D, fund
capital expenditure and paying off debt.
Coca-Cola Expansion
The Coca-Cola brand is famous all over the world. The country selected for this
purpose is Cuba. ("In which countries is Coca-Cola not sold?", 2012). One important reason
for making an expansion in Cuba is that the country follows fixed exchange rate. Since the
dollar will not vary according to market condition, therefore the possibility of exchange rate
fluctuation is removed which will make The Coca-Cola Company ascertain their profit
correctly. Also, Cuba was one of the first countries that Coca-Cola expanded into
internationally. However, the US recently lifted the trade embargo with Cuba, which paves
the way for Coca-Cola for entering the market and rebuilding its brand. Cuba will be a
favorable destination for expansion because of the influx of tourism and jobs being created
because of growth in the tourism sector. Further, the geographical distance between Cuba and
the US is less, making it a favorable destination for expansion because of the low cost of
Coca-Cola products.
THE COCA-COLA EXPANSION PLAN
3
Factors in the Domestic Market
The US country is the largest economy in the world with the GDP of approximately
$18.57 trillion. The GDP of the country is increasing indicating a significant rise in the
production of goods and services which is an indication of the increase in demand of diet
coke in the future. The inflation rate in the US is around 2.12% ("10-Year Breakeven
Inflation Rate", n.d.). The US has been able to maintain its inflation around 2% meaning the
price of the product will not increase much, and the company will not have to incur the high
cost of operations. Thus, when inflation increases people would not like the product. The
income level of the people in the US is rising indicating increase in the consumption of goods
and services which signifies an increase in demand for diet coke. Further, the unemployment
rate is 4.4% (2017 est) which decreased from 4.9% (2016 ). The microeconomic factors
impacting the business decision making of the company are customers and competitors. It is
the customers that play an important role in making a decision whether to buy a product or
not. Further, the company must consider its competition from major soft drink companies like
Pepsi and Red Bull.
Factors in the Global Market: Cuba
Cuba is a member of The Caribbean Community(CARICOM) whose objective is to
promote economic integration among its members. The company has a large tourism market
being favorable for Coca-Cola products. State-run enterprises run the economy of Cuba. The
inflation rate from 2015 to 2017 averaged 4.6%. The country recorded the highest inflation of
6% in 2013 and lowest of 0.8% in 2008. The GDP of Cuba was 87.13 billion US dollar in
2015 which represented 0.14% of the world economy ("Cuba GDP, “n.d.). The housing and
transportation costs are low with the government providing subsidies in the healthcare and
education sector. The company must also consider the slow pace of growth of the economy
which is a good indication of an increase in demand for diet coke.Now,the government in
THE COCA-COLA EXPANSION PLAN
4
Cuba is providing more freedom to its people as they are now able to buy electronic
appliances,cell phone and stay in hotels. ("The World Factbook — Central Intelligence
Agency," n.d.). It will finally lead to more consumption of diet coke.
Exchange Rate Regime
The central banks in the US intervene to a small degree to influence the exchange
rate. Thus, the US follows floating rate system where the central bank almost never
intervenes to manage the exchange regimes. Almost all advanced economies have floating
exchange rate regimes ("Finance and Development," n.d.). The economic situation in Cuba is
complex as the country follows dual currency system. One currency is The Peso Convertible
(CUC) which is the currency used by tourist, whereas The Peso Cubano (CUP) used mainly
by Cubans. Presently, the CUC in Cuba is fixed by the Cuban government which is set at a
fixed rate of 1CUC=1$ ("Money and Currency in Cuba," n.d.).
Economic Factors and Exchange Rate
Inflation will not have much effect on countries following fixed exchange rate regime as the
foreign currency is pegged to US dollar which is fixed. The main reason for following fixed
rate regime by Cuba is that fixed rate system supports a rising standard of living and
increasing economic growth. Further, economic growth can be influenced either by increased
productivity or investment. Pegged regimes like Cuba have higher investment. A reduction in
interest rates increases domestic investment and consumption. However, since Cuba is
pegged to US dollar, therefore lowering or the rise of interest rate will not affect the exchange
rate between the two countries. There exists a strong relationship between the interest
rate,inflation and exchange rates. By changing the interest rates, central banks will exert
influence over both inflation and exchange rate. A higher interest rate will cause more foreign
capital to attract which will cause the exchange rate to rise. Also, lower interest rate tends to
decrease the exchange rate. However, since in the inflation in Cuba is higher than the US, the
THE COCA-COLA EXPANSION PLAN
5
impact of interest rate gets lowered. Further, lower inflation in Cuba will exhibit a rising
currency value because the purchasing power of the country increases relative to other
currencies. However, inflationary tendency gets diminished when government follows fixed
exchange rate.
Financial Impact
The exchange rate movement will impact the company’s financial statement which
will be reflected in higher costs and thus lower profit margin. Since the Coca-Cola company
has largely based on shareholders. The increase in the value of Cuban currency will lower the
profit of the company operating internationally. Thus, the company will experience less
revenue as the same amount of good
Risk and Benefits
One of the most important benefits of expansion includes Cuba’s potential to present
new sales opportunity is high which would be realized in the near future. It offers huge
growth potential for the Coca-Cola which is the untapped potential market. The main risk
associated with doing business for the company is an economic risk. It has a cash flow effect
on a company. It is related to uncommitted cash flows which may lead to the reduction in
future sales when the dollar is exchanged for Cuban currency.
THE COCA-COLA EXPANSION PLAN
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References
Cuba GDP | 1970-2018 | Data | Chart | Calendar | Forecast | News. Tradingeconomics.com.
Retrieved 4 March 2018, from https://tradingeconomics.com/cuba/gdp
10-Year Breakeven Inflation Rate. Fred.stlouisfed.org. Retrieved 4 March 2018, from
https://fred.stlouisfed.org/series/T10YIE
Finance and Development. Finance and Development | F&D. Retrieved 4 March 2018, from
http://www.imf.org/external/pubs/ft/fandd/2008/03/basics.htm
In which countries is Coca-Cola not sold? (2012). BBC News. Retrieved 4 March 2018, from
http://www.bbc.com/news/magazine-19550067
Martin, W. (2017). These will be the 32 most powerful economies in the world by 2050. The
Independent. Retrieved 4 March 2018, from
http://www.independent.co.uk/news/business/these-will-be-the-32-most-powerfuleconomies-in-the-world-by-2050-a7587401.html
Money and Currency in Cuba. Cubagrouptour.com. Retrieved 4 March 2018, from
https://www.cubagrouptour.com/information/cuba/money/
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Running head: RISKS AND MITIGATION STRATEGIES
Risks and Mitigation Strategies
SNHU
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RISKS AND MITIGATION STRATEGIES
Risks coca cola is exposed to
Coca Cola as a multinational company is prone to risks both in the domestic and overseas
markets. A notable risk is the fluctuations in the exchange rates especially in the European market.
This risk impacts on the financial performance of the company greatly. Prices of commodities in
the market also has economic effects to the company. Interest rates also pose a significant risk to
the operations of Coca Cola Company. Political instability especially in the Eurasia and African
markets where Coca Cola Company has entered poses economical risks. All these risks pose great
challenges to the company since achieving of its profitability obligations becomes a problem.
When the financial results are affected by these risks it becomes difficult for firms to meet their
strategic goals hence affecting the business negatively (Jain and Kedia, 2011).
Foreign exchange rates risk mitigation
Companies can manage the exchange rate fluctuations through using a combined
foundation which enables the companies’ management to get exposures and obtain benefits from
them. Derivative tools are used by many companies to offset these changes which include
forwarding exchange products and acquiring of currency options through buying, especially those
that have low volatility risks. Through use of these tools the company is able to stabilize their
prices and investments since the value of their contracts and sales is determined at a future date
hence does not change to reach adverse situations that are detrimental to the organization’s returns
on assets. Translation exposures are also used in recording of foreign currencies used in
transactions (Coca-Cola., 2013). The translation are recorded in the financial statements without
being stated as common currency which allows adjustments to be made in case changes occur.
Both short term and long term exposures can be used to reduce these risks depending on the time
period the transactions will take place.
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RISKS AND MITIGATION STRATEGIES
Tools used by Coca Cola Company to mitigate foreign exchange rate risk
Coca Cola Company primarily uses the derivative financial tools to mitigate this risk of
foreign exchange rate fluctuations. Hedging is widely used by the company to offset future changes
in the prices of commodities in the foreign markets. The company enters into forward exchange
contracts and buys currency options. This helps the company hedge its sales obligation and
denominate them using other foreign money. The company also buys currency options,
specifically in Japanese yen and European currencies so to hedge certain expected sales. Profits
and losses that are realized are recorded in the financial statements as prepaid expenses or other
assets (Coca-Cola., 2013). These gains on the derivative tools are labelled as hedges as investments
in international markets hence are recorded as part of the shareholders’ equity in form of translation
adjustment income.
Financial impacts of international foreign exchange risk to inform risk mitigation strategies
Generally, foreign exchange risk is defined as risks associated with the unexpected changes or
fluctuations in the exchange rates as well as the foreign exchange exposure. Such unexpected
changes or fluctuations in the exchange rates impact the value of company’s assets. Normally,
foreign exchange risk is experienced when the fluctuation of currencies in foreign nation impacts
the competitive position of an organization. Coca Cola can mitigate through foreign exchange risks
by trading with nations with strong economic background (Coca-Cola., 2013). Some nations such as
USA and China are in good economic condition thus won’t subject both domestic and foreign
companies to foreign exchange risks.
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RISKS AND MITIGATION STRATEGIES
Future mitigation strategies
Pricing policy can be used to mitigate prospective risks. In this the company can decide to
charge more for their commodities after anticipating the foreign currency might devalue with a
certain percentage in future. However this strategy is also risky since it may not work well if the
fluctuations are more than expected. Purchasing of spot contracts is another strategy that can used
to mitigate exchange rate risk (Risk mitigation and management, 2006). These contracts work through
fixing the exchange rates from fluctuating hence one does not suffer from any negative fluctuations
at the same time not gaining from the positive increases. Prompt payments arrangements is also
another strategy that can used. The company may set the payment terms to be short so as to ensure
that any contracts are paid before the exchange rates fluctuate too much.
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RISKS AND MITIGATION STRATEGIES
References
Coca-Cola. (2013). Coca cola. [Place of publication not identified]: Spruce Books.
Jain, S., & Kedia, B. (2011). Enhancing global competitiveness through sustainable
environmental stewardship. Cheltenham, UK: Edward Elgar.
Risk mitigation and management. (2006). [Idaho Falls, Idaho].
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RISKS AND MITIGATION STRATEGIES
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