Pepsi vs Cola

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http://www.casetutors.com/22115/Coke-versus-Pepsi-2001-V-4-1.html Coke versus Pepsi 2001 V 4 1 Case ID - UVAF1340 Solution ID - 22115 1836 Words Abstract This case analysis takes into consideration the post 2001 period in which PepsiCo acquired Quaker Oats Company. The case analyzes the rivalry and competitive relationship between PepsiCo and Coca Cola. The case puts forward the concepts of EVA WACC and CAPM. The main goal of the case is to analyze the health of both companies in relation to EVA. As far as past performance is concerned Coca Cola is experiencing a decline in its EVA. The cost of debt and the cost of equity for both companies are almost the same. There is only a small difference in their capital structures. The future outlook suggests that Coca Cola should surpass PepsiCo in value creation taking into consideration EVA as its measure. Excel Sheet EVA Analysis Historical EVATM Estimation and Return Comparisons Cost of Debt Cost of Debt for Coca Cola Cost of Debt for Pepsi Cost of Equity Cost of Equity for Pepsi Cost of Equity for Coca-Cola WACC Weights Coca Cola Pepsi EVA EVA for Coca Cola EVA for Pepsi Questions Covered 1. What is EVA? What are the advantages and disadvantages of using EVA as a measure of company performance? 2. Please examine the historical performances of Coca-Cola and PepsiCo in terms of EVA. What trends do you observe? What are the factors behind those trends? What do you think are the key drivers of EVA? 3. What is the weighted-average cost of capital (WACC) and why is it important to estimate it? Is the cost of capital something that managers set? Who sets it? 4. Calculate the WACCs for Coca-Cola and PepsiCo. Assume a tax rate of 35%. Be prepared to explain your assumptions for the following components: Kd Ke Rf beta market risk premium weights of debt and equity

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