Pepsi Bottling - WACC Analysis

Pepsi Bottling (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Pepsi Bottling's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Pepsi Bottling's investment risk. WACC Formula = Cost of Equity (CAPM) * Common Equity + (Cost of Debt) * Total Debt. The result of this calculation is an essential input for the discounted cash flow (DCF) analysis for Pepsi Bottling. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Pepsi Bottling before they make value investing decisions. This WACC analysis is used in Pepsi Bottling's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Pepsi Bottling's company valuation.

WACC Analysis Information

1. The WACC (discount rate) calculation for Pepsi Bottling uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Pepsi Bottling over the long term. If there are any short-term differences between the industry WACC and Pepsi Bottling's WACC (discount rate), then Pepsi Bottling is more likely to revert to the industry WACC (discount rate) over the long term.

2. The WACC calculation uses the higher of Pepsi Bottling's WACC or the risk free rate, because no investment can have a cost of capital that is better than risk free. This situation may occur if the beta is negative and Pepsi Bottling uses a significant proportion of equity capital.