Given the following informatin for PepsiCo, determine the company's
weighted average cost of capital.
                             value                cost of capital
restraunt division          $5 billion               13%
snack foods division        $7 billion               12% 
Beverage division           $13 billion               8%

a) 10.12%
b) 11.00%
c) 12.10%
d) 13.00%

Hi again!!

The weighted cost of capital is just the weighted average cost of all
of the financing sources.

"Weighted Average Cost of Capital - WACC 
A calculation of a firm's cost of capital by weighting each category
of capital proportionately (shareholder's equity, bank loans, bonds,
etc..). This is the average expected return on a firm's investments.
Remember "a firm's investment's" includes buildings, machinery, and
other items that help earn a profit."
http://baystreet.investopedia.com/terms/w/wacc.asp  


WACC = (W1 * k1) + (W2 * k2) +....+(Wn * kn);

where Wi is the "weight" or proportional part of the total of the
capital that is considering of each part.
Then   W1 + W2 +...+ Wn = 1

Total of Capital:

T = $5 billion + $7 billion + $13 billion = $25 billion

For Restaurant Division we will use the suffix r, s for Snack Foods
Division and b for Beverage Division.

Then:
Wr = 5/25 = 0.20
Ws = 7/25 = 0.28
Wb = 13/25 = 0.52
Wr + Ws + Wb = 0.20 + 0.28 + 0.52 = 1;

WACC = 0.20*13% + 0.28*12% + 0.52*8% = 2.60% + 3.36% + 4.16% = 10.12%

The answer a) is the correct one.

Hope this helps

livioflores-ga

Thank you again! I appreciate all the explanations!

the answer is a).