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PV impact analysis
Module One
PV impact analysis | 1
PepsiCo Inc. ( Analysis of cash flow change)
A) As per the guideline provided in the question, it is quite clear that the proposed
buyer will get a discount rate of 9% to cover the uncertainty regarding the cash flows
for future years. The current cash flow needs to be discounted as per 9% present
value. So, the proposed buyer will be willing to buy the company at $ 629190 million
which is discounted value of cash flow of 2021 @9%.
B) Impact of cash flow changes
⚫ In case the PV factor of 5% is considered, there has been a steady cash flow for
the years 2021, 2020 and 2019 respectively. There is some sort of stagnant
position in the cash flow for the last two years. It is a sign of increasing risk,
which doesn’t augur well for the company.
⚫ In case cash flow decreases by 10% in each year, there would be a substantial
decline in present value of cash flows, in total there would be a decline of
$3078627.8million, which is quite a substantive amount of decrease and there
needs to be a proper analysis as to what lead to such a decrease in cash flows and
a deliberated proper plan should be ready to counter such situation.
⚫ In a case of 3% increase in cash flows and increase of PV to 7%, it leads to a
scenario where actual present value of cash flow doesn’t change much. In fact in
relation to Year 2020 there have been slight decrease in comparison to present
value of original cash flow calculated, it reflects that if PV factor changes,
increase in cash flow of company doesn’t show much difference and it shows
little change, so in case of present value factor changes, Company has to increase
its cash volume in much greater value to achieve the desired result in its true
sense(Bragg, 2017).
C) Seeing the current trend of company’s cash flow ,since b there is an increase in cash
flows position in terms of cash flow in next 3 years, which suggests that there will be b
less risk involved in purchasing the company , reasons are hidden and unclear so,
discounting factor should decrease to 6% to with the increase cash flow of coming 3
years b it may decline b to around 6% , which will suggest that in current scenario offer
price to purchase this company should be around $6595283 million.
PV impact analysis | 2
References
Bragg, S.M. (2017) Financial analysis: A business decision guide. Centennial, CO:
Accounting Tools, Inc.
