c. Will the interest expense recognized in 2015 be higher than, lower than, orthe same as the expense recognized in 2007? No calculations are necessary but explain your answer.3.The questions below pertain to PepsiCo’s Zero coupon notes (due 2008-2012). Assume anyrepurchases of Zero coupon notes occurred on 12/29/2007. (2 points)a. Were the Zero coupon notes issued at a discount, a premium, or at par? How can you tell?(3 points)b. What was the interest expense PepsiCo recognized in 2007 for its Zero coupon notes?(3 points) c.What is your best estimate of the total cumulative interest expense that PepsiCo will recognize over the remaining life of these Notes (i.e., in fiscal years 2008-2012)?(2 points) d.What is your best estimate of the cumulative amount of cash payments that PepsiCo will make in fiscal years 2008-2012 in connection with its Zero coupon notes? 5
Part III: Leases (15 Points)1.(3 points)a.What is the total amount PepsiCo is obligated to pay for lease obligations as of December 29, 2007?(3 points)b.What amount of lease obligations does PepsiCo report on the balance sheet at December 29, 2007?Assume that PepsiCo is considering entering into a leasing arrangement on January 1, 2008 in which it will be obligated to pay $100 million per year at the end of the year for 10 years. At PepsiCo's average borrowing rate of 6%, the present value of the lease payments is $736 million.2.(3 points)a.If PepsiCo were to capitalize this lease, what amount of lease asset amortization expense would be recognized in the first year?(3 points)b.If the lease were treated as a capital lease, what is the total amount of interest expense that would be recognized over the life of the lease?(3 points)c.Will total operating, investing, and financing cash flows over the life of the lease be higher than, lower than, or the same if this lease were instead accounted for as an operating lease? If different, by how much? 6
Part IV: Shareholders’ Equity (20 Points)1.(2 points)a.As of December 29, 2007, how many more common shares can PepsiCo issue under its current corporate charter?(2 points)b.Did PepsiCo issue any new common shares in fiscal 2007? How do you know?2. (2 points) a. How many shares of common stock did PepsiCo hold in treasury at December 29, 2007?(3 points)b.What was the average cost per share of the common shares repurchased byPepsiCo in fiscal 2007?(3 points)c.What was the average price per share that PepsiCo originally paid when it repurchased the shares that were issued for stock option plans in fiscal 2007?3.Suppose PepsiCo retired all common shares it repurchased in fiscal 2007.
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