The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online.

Instructions

Use the companies’ financial information to answer the following questions.

a. Compute the debt to assets and the times interest earned ratios for these two companies. Comment on the quality of these two ratios for both Coca-Cola and PepsiCo.

b. What is the difference between the fair value and the historical cost (carrying amount) of each company’s debt at year-end 2017? Why might a difference exist in these two amounts?

c. Both companies have debt issued in foreign countries. Speculate as to why these companies may use foreign debt to finance their operations. What risks are involved in this strategy, and how might they adjust for this risk?