Pepsico

In: Business and Management

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PepsiCo

EHREN HAYES

Dr. Geoffrey Vanderpal
GB550 – 02N

Kaplan University

October 4, 2011

Table of Contents

I. Abstract………………………………………………………………………2 II. Meet Pepsico……………………………………………………………….3 III. Capital Structure Issues……………………………………………3-4 IV. Business and Financial Risks……………………………………4-6 V. Growth Opportunities………………………………………………6-7 VI. Modigliani and Miller’s Capital Structure Theory……….…7 VII. Criticisms of the MM Model and Assumptions……………7-8 VIII. PepsiCo’s Capital Structure……………………………………….8-9 IX. Conclusion…………………………………………………………………..9 X. Refrences…………………………………………………………………..10

ABSTRACT

The following research will examine the capital structure of Pepsico and how the choices that the company makes affects their return on investment and their risk profile. The traditional theory of capital structure theorizes, “when the Weighted Average Cost of Capital (WACC) is minimized, and the market value of assets are maximized, an optimal structure of capital exists.” Pepsico analyzes their capital structure annually with their Board, including dividend policies and share repurchase activity. Long-term debt and solvency analysis will also be used to examine their capital structure in terms of financing sources and their ability to satisfy long-term debt and investment obligations.
A review of Pepsico’s decisions in recent years will be able to help determine some of the reason’s why the company’s return on equity (ROE) deteriorated from 2008 to 2009 and from 2009 to 2010. Pepsico has already concluded that one of the primary reasons for the decrease is the profitability measured by return on assets (ROA) has also decreased.
Reviewing the firm’s past few annual reports, news and financial articles on their recent business decisions and strategies, and information from their corporate website will be the…...

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