• What is the company you have selected? PepsiCo
• What is the company using their option contract for? Pepsi is using
their stock option plan, called the PepsiCo Share Power Stock Option
Plan, "to improve individual employee performance by providing long-
term incentives and rewards to employees of the Company; to assist
the Company in attracting, retaining and motivating employees with
experience and ability; and to associate the interests of such
employees with those of PepsiCo’s shareholders" (PepsiCo Share
Power Stock Option Plan, n.d.).
• What is the value of the option contract in the Annual Statements? As
of 12/25/21, the date on the financial statements, PepsiCo had a 9.88
thousand weighted average grant date fair value of options granted,
185 million in proceeds from exercises of stock options (PepsiCo Inc.,
Form 10-K).
• Copy/paste a picture of the value from the financial statements.
Stock Options
A stock option permits the holder to purchase shares of PepsiCo common stock at
a specified price. We account for our employee stock options under the fair value
method of accounting using a Black-Scholes valuation model to measure stock
option expense at the date of grant. All stock option grants have an exercise price
equal to the fair market value of our common stock on the date of grant and
generally have a 10-year term.
Our weighted-average Black-Scholes fair value assumptions are as follows:
2021
2020
2019
Expected life
7
years
6 years
5 years
Risk-
free
interest
rate
1.1
%
0.9
%
2.4
%
Expected volatility
14
%
14
%
14
%
Expected dividend yield
3.1
%
3.4
%
3.1
%
The expected life is the period over which our employee groups are expected to
hold their options. It is based on our historical experience with similar grants. The
risk-free interest rate is based on the expected U.S. Treasury rate over the
expected life. Volatility reflects movements in our stock price over the most recent
historical period equivalent to the expected life. Dividend yield is estimated over
the expected life based on our stated dividend policy and forecasts of net income,
share repurchases and stock price
(PepsiCo Inc., Form 10-K).
• Imagine you are a retiree from this company and received stock as part
of your pension package benefit. What would you do with the shares
to earn extra money above the dividends?
If I was a retiree from PepsiCo with stock as part of my pension benefit, the
best way to earn extra money, outside of dividends, would be to hold onto the
stock until the price per share is high. At that time I would sell a chunk of the
shares I have and hang on to some to maintain the dividend income.
References
PepsiCo Inc. Form 10-K. (n.d.). Retrieved January 5, 2023, from
https://www.sec.gov/ix?doc=%2FArchives%2Fedgar%2Fdata%2F77476%2
F000007747622000010%2Fpep-20211225.htm
PepsiCo Share Power Stock Option Plan. (n.d.). Retrieved January 5, 2023,
from
https://www.sec.gov/Archives/edgar/data/77476/000095013003001850/dex1
013.htm
