1. you have been hired as a financial analyst by a private equity firm. Your firm along with the management of PepsiCo, Inc. (PEP) is investigating the possibility of taking the company private, i.e. your firm and PepsiCos management will buy all of the shares.

You have been assigned to address the issues found below. The information that you provide will be used by the decision makers to determine a price per share for the stock. For the computations use the information found on the Yahoo! Finance web pages for PepsiCo, Inc. (PEP). The numbers used would be for the financials of December 26, 2015 and December 27, 2014. Other computations and issues which require more current information will be found on these webpages as well.

For discussion questions, a good source of information is found in the companys Annual Report for 2015, as well as recent articles concerning PepsiCo, Inc. (PEP). The link to the companys official web site can be found in the Profile page on Yahoo! Finance. Your grade for the qualitative answers depends on the quality and quantity of relevant information, as well as the quality of writing.

a) Discuss PepsiCo in the context of the forces considered in performing an environmental scan.

b) Discuss the risks that PepsiCo needs to consider in conducting its operations.

c) Explain whether you believe that PepsiCo can take on more debt. Use some computations to support your conclusion.

d) Discuss PepsiCos inventory position. Compare PepsiCos inventory

position to that of The Coca Cola Company.

e) Construct the DuPont Identity for PepsiCo and Coca Cola. Explain your results.

f) Determine the MVA for PEP and KO and discuss the results.

g) Determine the EVA for PEP and discuss the results. Assume that PEPs cost of capital is 8 percent. Use a tax rate of 23 percent for PEP. Discuss the results

h) Determine PEPs free cash flow for 2015. Comment on the results.i) Compare and discuss the PE ratios for PEP and KO.

j) Discuss the overall financial health of PEP.

k) After the final price is determined for PepsiCo, do you believe

that this is evidence of an efficient or inefficient market? Explain.

2. Explain how the required rate of return for PepsiCo could be determined using a quantitative approach and how a qualitative approach. For the qualitative approach, which layers or textures of risk might be evident in PepsiCos rate of return.

3. Your stockbroker has called has called to tell you about two stocks: Netflix, Inc. (NFLX) and International Business Machines Corp. (IBM). He tells you that Netflix is selling for $138.00 per share and that he expects the price in one year to be $160.00. IBM is selling for $167.00 per share and he expects the price in one year to be $170.00. The expected return on NFLX has a standard deviation of 30 percent, while the expected return on IBM has a standard deviation of 8%. The market risk premium for the S & P 500 has averaged 7.5 percent. The beta for NFLX is .7 and the beta for IBM is .9.

Required:

Determine the probability for each stock that you would earn more than your required rate of return.

Determine the probability for each stock that you would earn a return that is negative.

Explain why you would or would not buy either or both of the two stocks.