Question 1. How has PepsiCo performed over the last 10 years at both the corporate and
shareholder level? Has the company created value for the stockholders as claimed?
Provide quantitative support for both of your answers.
PepsiCo principle objective is to increase the value of its shareholder’ investment through
integrated operating, investing and financing strategies that maximize cash returns and
optimize the cost of capital.
PepsiCo stock price has steadily gone up in price over the past 10-years. Its current price is
a healthy $103.78. January 2nd the price was $34.48. There have few drops and not too
many significant jumps in price. The priority of the corporation has certainly change over
the years.
Question2. What are the costs of capital (WACC) for the individual business segments?
WACC (Soft Drink) ≈ 15.53%
WACC (Snack Food) ≈ 15.87%
WACC (Restaurant) ≈ 14.56%
Question 3. In your estimate, what is PepsiCo’s overall corporate cost of capital? If this
differs from management’s estimate, provide possible reasons why.
In my estimate, PepsiCo’s overall corporate cost of capital is 15.32% and this differs from
management’s estimate as 11%. Corporate cost of capital is not the same if corrected for
the different divisions, because of the difference between book values and market values,
different risk free rates, and different comparable firms. Also, we need to pay attention on
the risks in different divisions are not comparable and not the same as the corporate risk.
