• 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
1.1
%
0.9
%
2.4
%
interest
rate
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%2F000007747622000010%
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/dex1013.htm
