a.

As we know, current maturities of long term debt are repayments of long term debt that
companies are obligated by contract to pay in the next year. Therefore PepsiCo Inc. must
pay $2901 million in the next year. This amount is reported that way because PepsiCo
decided to group together its current maturities with other short term debt, which is
completely normal. Another method they could have use was to report current maturities
under the current liabilities section of the balance sheet. PepsiCo Inc. report $6450
million of long term debt means that this amount has matured and must be repaid during
the time period of 2014-2015. This amount is very important in the analysis of the
solvency of PepsiCo. The company can chose to either repay the debt from cash flows or
refinance by taking out another debt.
b. The given information showed that the bond is selling at a premium of 113.79% of face
value. One can conclude that this new premium price reflects decreasing interest rates.
Also, since they were the issuers the premium might have been caused by a decrease in
the market interest rates.
c. In the case of PepsiCo, only a fraction of its long term debt is maturing in the next year.
The majority of its debt is maturing in the next couple years. The company does not need
to concern about defaulting on its loan since its operating cash flow is very strong.
d. A reduction in a companys credit rating is not a positive thing. Similar to a persons
credit rating, lenders such as banks may require a higher interest rate on loans due to the
increase risk. This would in turn increase the companys borrowing cost for any future
loans.
e. Liquidity and solvency are two things that PepsiCo needs to improve in order to improve
its credit ratings. Also, reducing its debt payment will also help them in that endeavor.
PepsiCo needs to weigh in the cost and benefits of any actions that they are planning on
taking. For example if they chose to increase the companys liquidity then they have to
weigh in the cost of reducing inventories which would reduce the companys sales thus
overall revenue.