Read the PepsiCo, Inc.: Cost of Capital case and complete thisassignment, drawing upon what you have studied in this lesson. Recognizethat you are developing cost of capital estimates and that differentanalysts may come up with different estimates. You want to use the datain the case to develop your inputs and outline the assumptions that youare making and describe the calculations employed to develop yourestimates.

You should present your findings in a report to theCFO not to exceed two pages of text (typed, double-spaced, 12-pointfont, one-inch margins) plus one or two exhibits. Your report shouldcontain an introduction, a summary of your analysis, and a conclusion.You will want to use an Excel spreadsheet to do the analysis for thisassignment, but any exhibits should be produced in MS Word. You shouldupload only one Word file containing the text of yourreport plus exhibits. Use the following questions to focus youranalysis, but your report should not be in question-and-answer format.

1. What is the overall cost of capital for PepsiCo(using beta of 1.1)? Do you agree with the 11% number stated by PepsiCo?If not, why could your number differ from 11%? Use totalinterest-bearing debt (short-term and long-term) as debt.
2. What are the costs of capital for the individualbusiness segments? Estimate these using data in the case and thepure-play method.
3. Do the costs of capital for the business segments add up to the overall cost of capital? Why or why not?
4. What is the danger of using the overall cost ofcapital to make decisions at the divisional level? Give examples of thetypes of errors that could occur. Can you think of some other uses for adivisional cost of capital?