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What is Pepsico Capital Structure Analysis about?

Pepsico needs to raise $5 billion in financing for investments. Issuing debt would increase earnings in the short-run due to tax benefits, but would increase risk. Issuing equity at fair value would have no effect on stock price according to M&M theory, but empirical evidence shows equity issuance reduces stock prices. In practice, companies follow a pecking order of financing preferences, first using internal funds then issuing debt, and rarely equity, due to costs of financial distress if overleveraged.

Author

Wasim

Language

EN