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COKE VERSUS PEPSI, 2001

COKE VERSUS PEPSI, 2001. Presenters: Thomas Hsieh ; Eric Peng ; Wendy Tseng Xiuhui Chong ; Che -Yi Chiang ; Alex Chen. Quick Summary. KO. Goal: To compare which company has a more brighter future between Coca-Cola or PepsiCo. . PepsiCo. Comparisons. EVA Calculation.

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COKE VERSUS PEPSI, 2001

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  1. COKE VERSUS PEPSI, 2001 Presenters: Thomas Hsieh ; Eric Peng ; Wendy Tseng Xiuhui Chong ; Che-Yi Chiang ; Alex Chen

  2. Quick Summary KO • Goal: • To compare which company has a more brighter future between Coca-Cola or PepsiCo. PepsiCo

  3. Comparisons

  4. EVA Calculation

  5. 1) WACC Calculation • WACC=d(1-t)* • d)=YTM*2 -> Due to semi-annually • =Rate(Nper,pmt,pv,fv,0) <- Excel calculation • Cost of equity (Re)= f+β(m－f) ->Exhibit 8 • f = Current yields on US treasuries (10-year – 5.73%) • Β = Historic Betas (Average) • (m－f) = Historical Equity Risk Premiums (Arithmetic: est. Future) • D= Firm’s debt -> Exhibit 6 &7 • E=Firm’s equity ->Exhibit 6 &7 • Assume corporate tax (t) = 35% -> Google

  6. 1) WACC Calculation- Firms Debt Demo D = Firm’s debt = Total Debt – (Accrued debt & A/P)

  7. 1) WACC Calculation - YTM Demo Coke 2001 (Exhibit 8) : • Nper = 17 (Assume paid on 30th April 2001) • Pmt = 5.75% * 0.5 (coupon paid semi-annually) • Pv = -915.4 (Current price per of 1000) • Fv = 1000  YTM= Rate(Nper,pmt,pv,fv,0) = Rate(15,1000*5.75%*.5,-932.6,1000,0) = 3.46%  Rd = YTM * 2 = 6.92%

  8. 1) WACC Calculation - Results

  9. 2) NOPAT Calculation NOPAT(Net Operating Profit after Taxes) = Operating Income+ Amortization*- Cash Tax** *need to add back because amortization and other noncash expenses don’t direct involve in operation, depreciation is not added back because depreciation represents to the using of equivalents which are direct involve in operations **cash tax as tax to deduce when tax rate is uncertain

  10. 3) Invested Capital Calculation Invested Capital = Total Assets - Non Interest Debt** *Invested Capital = total liabilities + total debt- non-operating cash & investment or use total assets to represent  Assets = E + L ***Non interested debt = A/P + Accrued income tax + deferred income tax

  11. 4) EVA Calculation EVA = Economic Value-Added = NOPAT - (WACC * Invested Capital) = [Return on Invested Capital (ROIC) - WACC] * IC ROIC = NOPAT / Invested Capital

  12. Conclusions • Why PEPSI’s EVA < COKE’s EVA? • We can infer the possibility of bad utility rate of assets. Although PEPSI has so many product lines, It may also cost too much on marketing and other items. • Lower growth rate of CSD expected! • Although COKE’s EVA is larger than PEPSI’s, recession on CSD’s market is still going on. COKE that the profits are almost generated from the CSD market should focus more on other beverage or food markets in the future.

  13. Thank You For Listening!!

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