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A capstone
capstone project
project presentation
presentation
on
on
A competitive comparison of Soft drink
industry in India in context of PepsiCo and
Coca cola ent.inc.
Prepared by: Akshaykumar Jadav(34)
6 698,000 - -476000 -
Common Equity:
10-Year T-bond=6.27%
S&P 500 return=12%
PepsiCo beta =0.5
Coca-Cola beta=0.63
PepsiCo: Rs=6.27+(12-6.27)0.5
=9.135
Coca-Cola: Rs=6.27+(12-6.27)0.63
=9.89
Long-Term Debt:
PepsiCo
debt: 4,203,000,000 = 3.5%
Common stock: 115,360,876,600 =96.5%
119,563,876,600 =100%
Coca-Cola
debt: 3,277,000,000 = 2.4%
Common stock: 135,513,142,200 =97.6%
138,790,142,200 =100%
PepsiCo WACC:
WdRd + WceRs
=.035(7.0%) + .965(9.135%)
=9.045%
Coca-Cola WACC:
WdRd + WceRs
= .024(7.1%) + .976(9.89)
= 9.87%
It’s important to note here that neither PepsiCo nor Coca-
Cola issue preferred stock, so that component was not
utilized in the WACC computation.
A surprising discovery was the low tax rate for both of
these corporations: 26% for PepsiCo and 22% for Coca-
Cola. This may be attributed to lower tax rates overseas,
where these companies derive a significant portion of their
revenues from.
research reveals that the strongest candidate as an
investment opportunity is PepsiCo. The WACC computation
Made the choice easier. Nevertheless, Coca-Cola is a strong
performer and is poised for a comeback. PepsiCo cannot
rest on its laurels, if it neglects any aspect of its core
business it is bound to be overtaken by its eternal rival.
Ratio analysis
To illustrate efficiency as a good investment choice, we will use
data from the annual reports of PepsiCo, Coca-Cola, for the fiscal
year 2008, in order to form comparative ratios. To realize the
values of the ratios, it is necessary to compare them with
benchmark values. One benchmark consists of similar firms in the
same industry.
Liquidity:
Liquidity refers to a company's ability to meet its requirements
for cash. Liquidity is necessary to meet both expected and
unexpected cash demands.
The standard measure of liquidity is the current ratio,
calculated by dividing "current assets" by "current liabilities”.
The current ratio for PepsiCo of 1.1 indicates it is the more
liquid of coke, and also performing better than the beverage
industry with a 1.00 figure.