Lecture14 2010.10.31 PreClass

Lecture14 2010.10.31 PreClass - Lecture 14 Long-Lived...

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1 Lecture 14 Long-Lived Assets
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2 In the news… Pepsi's Secret Formula for Growth 9 October 2009, The Wall Street Journal Online PepsiCo 's profits should come with a warning label. On Thursday, PepsiCo said earnings excluding currency impacts would rise 11% to 13% next year. That might tempt investors to put behind them the slower earnings growth of recent quarters that has helped PepsiCo 's stock lag behind Coca-Cola 's. But the growth target includes benefits from PepsiCo 's recent deal with its bottlers, including changes to the asset-depreciation schedule , some of which are a one-time event. A Securities and Exchange Commission filing this week showed the purchase of Pepsi Bottling Group and PepsiAmericas would have boosted earnings by nine cents a share in the first half. Assuming a similar impact in 2010, full- year earnings could be boosted 18 cents, or five percentage points of the growth target. That would suggest underlying earnings growth as low as 6% to 8%. The impact on earnings probably isn't quite so large. PepsiCo plans to direct some of the profit enhancement to investment. But while it is positive to see more spending, such steps take time to feed into revenue growth. That leaves a question mark over the Americas beverage division. In the first three quarters, the division's operating profit, excluding currency, fell 6%. While the bottling deal will generate cost savings, PepsiCo has yet to lay out a plan to rejuvenate the division's revenue, which fell 7% from a year earlier in the third quarter, excluding currency impacts. Admittedly, PepsiCo 's international and snack divisions, which make up 75% of revenue, are performing much better. But with so much uncertainty hanging over a U.S. beverage turnaround, it is too early to declare the can half-full.
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Announcements • HW#2 due 11/7 at 9 AM. • Exam #2 – Next Monday (6 PM – 8PM) – 1 page cheat sheet and calculator are allowed. – Exam will be cumulative with an emphasis on the most recent material and will cover up through (and including) Lecture 15. – Exam conflict requests: will receive mails shortly. • We’ll be in touch about regrade requests for Exam #1. 3
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4 Goals of Today’s Class • Tangible Assets: – Acquisition of PP&E • Purchase • Construction – Depreciation • Intangibles & Goodwill
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Tangible Assets 5
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6 Types of Transactions That Affect the Net Book Value of PPE • Transactions that increase PPE – Acquisitions of PPE by purchase – Acquisitions of PPE by self-construction – Expenditures for improvements and betterments • Transactions that decrease PPE – Depreciation – Disposal of PPE by sale or abandonment – Permanent impairment of value
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7 Types of Transactions That Affect the Net Book Value of PPE • Transactions that increase PPE – Acquisitions of PPE by purchase – Acquisitions of PPE by self-construction – Expenditures for improvements and betterments • Transactions that decrease PPE – Depreciation – Disposal of PPE by sale or abandonment – Permanent impairment of value
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Lecture14 2010.10.31 PreClass - Lecture 14 Long-Lived...

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