An annual report for PepsiCo contained the following information (in millions of U. S. dollars):

Net earnings .....................$ 6,214

Depreciation and amortization ............. 2,689

Decrease in trade receivables ............. 250

Decrease in inventories ................ 144

Decrease in prepayments ............... 89

Increase in trade payables .............. 548

Decrease in taxes payable .............. 97

Cash dividends paid .................. 3,305

Repurchase of shares ................ 3,226

Required:

1. Compute the cash flows from operating activities for PepsiCo by using the indirect method.

2. Compute the quality of earnings ratio.

3. What were the major reasons that Pepsi’s quality of earnings ratio did not equal 1.0?