A recent annual report for PepsiCo contained the following information for the period (dollars in millions):

Net income ............ $5,142

Depreciation and amortization ..... 1,543

Increase in accounts receivable .... 549

Increase in inventory ........ 345

Increase in prepaid expense ........ 68

Increase in accounts payable ..... 718

Decrease in taxes payable ....... 180

Increase in other current liabilities ... 738

Cash dividends paid ........ 2,541

Treasury stock purchased ....... 4,720

Required:

1. Compute cash flows from operating activities for PepsiCo using the indirect method.

2. Compute the quality of income ratio.

3. What were the major reasons that PepsiCo’s quality of income ratio did not equal 1.0?