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Paper Topic:

mod 5 written critique

1 . Cost of capital is defined as the return required for an investment in a company . A company can obtain capital through investors or through the issuance of debt instruments . This comprises the cost of equity and the cost of debt , the two elements of the cost of capital

Running a business requires meeting expenses like rents , utilities and salaries . A company uses part of its earnings to meet those expenses Aside from the expenses incurred in its daily course of business , it has to have funds to meet its obligations to its

investors and shareholders Investors and equity holders invest in a particular company or a particular bond or other debt vehicles with profit in their minds . By using other people 's money to run its business , a company is required to pay a return for the capital it uses in the form of interest payments to bond holders or dividends to shareholders

If it can 't pay its cost of capital , the company is in danger of defaulting on its obligations . Shareholders may also choose not to continue with their investments in that company should they fail to receive returns . A company operates on a combination of cash and debt If it fails to obtain a revolving credit then its operations will be crippled

2 . Coke 's attempt to bolster its balance sheet has adverse impact on its bottlers . When Coke

spun off the bottling network and later placed executives on their board of directors , the company made sure that every decision of the major distributors will be favorable to the cola company . Also , Coke raised the price of concentrates that it sells to its bottling partners Because of this , bottlers have to shoulder the additional cost without expecting a return . It would have helped them if they can pass to consumers the additional cost of concentrates . However , they can 't raise prices for Coke products since competition is stiff in the market Even if Coke has brand power , other beverages are getting popular and are considerably cheaper . For instance , bottled tea is getting a larger chunk in the market that is once dominated by coke

The economic crunch worldwide also prevents these distributors from hiking prices

3 . Coke should care about its bottlers ' problems because they are the backbone of the company 's distribution network . Without them , Coke products won 't reach consumers . While Coke has the concentrate , the distributors do the legwork for the company . They go to the consumers and make the actual sales . If Coke won 't care about their problems it 's like committing suicide

The bottlers ' problems affect Coke since the two are linked . Without Coke , the bottlers have no concentrate to sell . Also , without the bottlers , Coke has no distributors for its products . More importantly the rating agencies do not look at Coke and the bottlers as two separate entities . If the bottlers have financial difficulties , the rating agencies would also think that Coke has financial worries . If ratings were low...

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