Capital Valuation, Essay Example

Estimate the intrinsic value of the equity of the company and compare with its market value.

In determining the intrinsic value of the company using the dividend discount model (DDM), the DDM formula Po = Div/r-g. Pepsi’s Current price is $0.18 per share. Pepsi has a current rate of return of 30.3%, and with average expected growth rate of 13.6%  (finance. yahoo).

DDM as following Po = .18/. 330-.136 = $1.07.

The results predict an intrinsic value for future Pepsi stock of. $1.07. In comparing to today’s market value price of $62.29, it appears that the company’s stock price will proceed to increase.

What does the difference between the intrinsic value and the market value suggest about whether the stock may be a good investment.

Given that the intrinsic value is predicting the stock’s future performance, there are numerous assumptions that still can be considered based on company performance in the economy.

Pepsi Company most concerns will be continuing to promote healthy snacks, because of the obesity the world face, as well as mention risk company profile displays in deciding if the stock will be good investment, based on the dividend discount model (DDM) Pepsi Company will be a good investment, considering that Pepsi’s stock will continue to increase.

Estimate the market value of the debt and compare it with the book value of the debt. What is the primary reason for the difference?

The book value of the debt is total liabilities, $23, 888, 000, 000 based on (financeyahoo.com) Pepsi’s balance sheet, and the current market value of debt is by calculating the book value per share times number of shares outstanding

Book value 9.04 (x) shares outstanding 1.56 billions = $14,102,400,000.

The primary reason for the difference between the book value and market value of the company is the interest rate associated with debt. Given that the book value of debt does not change with market, the company will hold the same interest rate in accordance with the day the company obtained the debt. Based on the book value of debt for Pepsi Company, has obtained close to twenty four billion dollars in debt.

The Market value of debt changes with movement of the interest rates within the current market. An interest rate shows the market value of debt yielding nearly fourteen billion dollars and this displays a significant increase in the value of the stock for the company. Primarily, if the interest rate of the market increased the value of company stock will decrease.

Since the company is the assets of the company and Assets = Debt + Equity . . . what is the market value of the company and how does that compare with the book value of the company? Based on the difference between market value and book value of the company how effectively has management been managing the assets of the company?

The Market value of the company is $14,102,400,000. As stated on the balance sheet (2008), indicates Pepsi book value is. $35, 994, 000, 000 (finance yahoo 2009)

The Market value of the company compared to its current book value displays that company is able to pay their obligations. Based on difference between market value and book value this demonstration that company’s managements team is performing very well in managing the company’s assets.