Weighted Average Cost of Capital Project

1. Retrieve financial data for Pepsi (PEP)

2. Use the firm's most recent capital structure (see below) to calculate the weighted average cost of capital (WACC) for Pepsi.

3. This written project must follow the report format. Make sure that your written analysis has all the required elements specified in the project grading rubric!

The report should give the following information:

A) A list of the capital structure and marginal tax rate

B) The face value, price and total market value of each bond.

C) The dividend and EPS history of the common stock

D) Beta of the common stock

The report should show the following: W_B, W_pf, W_cs, YTM, R_B, R_pf, R_cs the six component parts of the WACC calculation and the respective value of each. [HINT A nice summary table will help display these results.]

6. All sources of information must accompany the paper, either in original or copy form. Attach in Appendix.

8. Grading of the project will be based on the following considerations and the rubric:

A) Proper consideration of the necessary elements of the WACC;

B) Calculation accuracy;

C) Organization of the paper;

D) Completeness;

E) Documentation and justification of the assumptions made;

9. Sources of Information:

A) Capital Structure

1. Annual Reports (probably the most detailed source)

2. Morningstar.com

3. Value Line Investment Survey (Library)

4. yahoo.finance or msn money

B) Market Data

1. yahoo.finance or msn money

2. Morningstar.com

3. Barron's or WSJ

10. Other Considerations:

A) The cost of equity should be done by averaging the dividend discount model AND the capital asset price model.

B) The cost of debt (before tax) should be done by computing an average YTM on all Pepsi Bonds.