Executive Summary Of Pepsico :: essays research papers

Executive Summary of PepsicoThrough my research of Pepsico, I create calculated the exist of capital. Afirms cost of capital is imperative because it represents the hard cash used tofinance the firms assets and ope rations. First you lay down to estimate the costof capital in order to minimize it.In estimating the cost of capital, you first have to fuck off the cost ofeach capital component and then immingle the component costs to find the weightedaverage cost of capital. First, I calculated the cost of debt. Pepsicos bondconsisted of 7 5/8 voucher rate, maturing in 1998 at a price of $1023.80. Ifigured the payments to be $38.15(.0763*1000/2). I then used my financialcalculator to find the bond yield of 5.16% by entering in 1023.80=PV, 1000=FV, 2=N, 38.15=PMT. The bond was calculated semi- yearbookly, therefore I multiplied theanswer for I/Y times 2 to get 5.16%.The next step would be to calculate the preferred stock, however mystock had none. I then went to the tierce step of calculating cost of retainedearnings. First I arrange the three harvesting rates which were historical, forecast,and sustainable growth. The historical and forecast annual rates I simplypulled directly from Value Line realizeher Past 10 years and estimated years of thedividends. They both were 14.0%. The sustainable growth is calculated bytaking the computer memory rate (b) and multiplying it by the cash in ones chips on equity (r ).To find b, I first calculated the dividends payout ratio which is DPS/EPS. Ipulled DPS and EPS from value line under 1997. Then to find the retention rate,I subtracted the ratio from 1. Next, I calculated r, by taking net income anddividing it by net worth. These figures I also pulled from Value Line. My b=.352, and r=28.68%. Then the third growth rate was 10.10(.352*28.68).Still calculating the cost of retained earnings, I then calculated mycash scarperings by the discounted cash flow approach. For the first three cash flows,I took the divide nd of the stock oer the price of the stock, and then added thegrowth rate to it. My first cash flow equaled to 15.38%, second was also 15.38%,and the third one was 11.45%. To find the cash flow four, I used the CAPMapproach. This formula is Ks=Krf + (Km-Krf)bs. I make up beta on Value Linewhich was .95. The risk free rate was found by obtaining the current yield on a20yr. T-bond from the Wall Street Journal. It equaled 6.60%. The Km-Krf wasfound in the book, and equaled 7.