Pepsico - Wacc

Published: 2021-06-29 06:32:06
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Category: Business

Type of paper: Essay

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As PepsiCo has grown and evolved since incorporating in 1919 the need for more analysis continues to grow. Over the years PepsiCo has identified 3 major segments of operations; snack foods, soft drinks, and restaurants. PepsiCo however is traded and judged as a company with all these segments, but as we review new projects we must look at the risk of each specific project as it pertains to the business segment it involves.
PepsiCo’s annual report shows that our WACC is 11% based on our current financial structure. Exhibit 1 shows an analysis, which supports the 11% number. It also however shows a 11.45% WACC based on a target debt to equity ratio of .25 instead of our current ratio of .36. I do agree with using the current 11% WACC as a hurdle rate for new projects. However as debt decreases this hurdle rate may need to be re-evaluated to address the change in debt to equity ratio.
Exhibit 1
PepsiCo WACC - Overall
Cost of Debt 5.98%
A Rated Bond Yield 9.64%
Tax Rate 38%

Cost of Equity 12.82%
Beta 1.1
Long Term Bond (arithmetic) 4.90%
S&P 500 (arithmetic) 12.10%

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