Actual Projected 2015 Year +1 Year +2 Year +3 Year +4 Year +5 Comprehensive income $ 2,954 $ 7342 $ 7,575 $ 7,803 $ 8,039 $ 8,283 Common shareholders' equity: Paid-in Capital $ 15,776 $ 15,723 $ 16,279 $ 16,839 $ 17,392 $ 17,939 Retained Earnings Treasury Stock 65,018 66,854 68,747 70,698 72,708 74,779 (45,066) (45,952) (47,818) (49,797) (51,892) (54,107) Accumulated Other Comprehensive Income (10,174) (10,174) (10,174) (10,174) (10,174) (10,174) $ 28,437 Total Common Equity $ 25,554 $ 26,451 $ 27,035 $ 27,566 $ 28,033 The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume that the risk-free interest rate (RE) is 3.0% and the market risk premium (E[RMrt]-RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the end of 2015. when the share price was $42.96.
Actual Projected 2015 Year +1 Year +2 Year +3 Year +4 Year +5 Comprehensive income $ 2,954 $ 7342 $ 7,575 $ 7,803 $ 8,039 $ 8,283 Common shareholders' equity: Paid-in Capital $ 15,776 $ 15,723 $ 16,279 $ 16,839 $ 17,392 $ 17,939 Retained Earnings Treasury Stock 65,018 66,854 68,747 70,698 72,708 74,779 (45,066) (45,952) (47,818) (49,797) (51,892) (54,107) Accumulated Other Comprehensive Income (10,174) (10,174) (10,174) (10,174) (10,174) (10,174) $ 28,437 Total Common Equity $ 25,554 $ 26,451 $ 27,035 $ 27,566 $ 28,033 The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume that the risk-free interest rate (RE) is 3.0% and the market risk premium (E[RMrt]-RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the end of 2015. when the share price was $42.96.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter12: Valuation: Cash-flow Based Approaches
Section: Chapter Questions
Problem 1EIC
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Question
![Use the CAPM to compute the required rate of return on common equity
capital for Coca-Cola.
E[Rei] = RF + B;(E[RMrt] – Rp)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5392d40c-c2b0-441a-a483-051336786026%2Fed91f1ef-cfbc-4090-91dd-e97589c6bd9a%2Fh2a6k32o_processed.png&w=3840&q=75)
Transcribed Image Text:Use the CAPM to compute the required rate of return on common equity
capital for Coca-Cola.
E[Rei] = RF + B;(E[RMrt] – Rp)
![Dividends-Based Valuation of Common Equity. The Coca-Cola
Company is a global soft drink beverage company (ticker: KO) that is a primary
and direct competitor with Starbucks. The following data for Coca-Cola include
the actual amounts for 2015 and the projected amounts for Years +1 through +5
for comprehensive income and common shareholders' equity (amounts in
millions).
Actual
Projected
2015
Year +1
Year +2
Year +3
Year +4
Year +5
Comprehensive income
$ 2,954
$ 7,342
$ 7,575
$ 7,803
$ 8,039
$ 8,283
Common shareholders' equity:
Paid-in Capital
Retained Earnings
$ 15,776
$ 15,723
$ 16,279
$ 16,839
$ 17,392
$ 17,939
65,018
66,854
68,747
70,698
708ור
74,779
Treasury Stock
(45,066)
(45,952)
(47,818)
(49,797)
(51,892)
(54,107)
Accumulated Other
Comprehensive Income
(10,174)
(10,174)
$ 26,451
(10,174)
$ 27,035
(10,174)
$ 27,566
(10,174)
$ 28,033
(10,174)
Total Common Equity
$ 25,554
$ 28,437
The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume
that the risk-free interest rate (RF) is 3.0% and the market risk premium
(E[RMkt] – RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the
end of 2015, when the share price was $42.96.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5392d40c-c2b0-441a-a483-051336786026%2Fed91f1ef-cfbc-4090-91dd-e97589c6bd9a%2Fl7jia7c_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Dividends-Based Valuation of Common Equity. The Coca-Cola
Company is a global soft drink beverage company (ticker: KO) that is a primary
and direct competitor with Starbucks. The following data for Coca-Cola include
the actual amounts for 2015 and the projected amounts for Years +1 through +5
for comprehensive income and common shareholders' equity (amounts in
millions).
Actual
Projected
2015
Year +1
Year +2
Year +3
Year +4
Year +5
Comprehensive income
$ 2,954
$ 7,342
$ 7,575
$ 7,803
$ 8,039
$ 8,283
Common shareholders' equity:
Paid-in Capital
Retained Earnings
$ 15,776
$ 15,723
$ 16,279
$ 16,839
$ 17,392
$ 17,939
65,018
66,854
68,747
70,698
708ור
74,779
Treasury Stock
(45,066)
(45,952)
(47,818)
(49,797)
(51,892)
(54,107)
Accumulated Other
Comprehensive Income
(10,174)
(10,174)
$ 26,451
(10,174)
$ 27,035
(10,174)
$ 27,566
(10,174)
$ 28,033
(10,174)
Total Common Equity
$ 25,554
$ 28,437
The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume
that the risk-free interest rate (RF) is 3.0% and the market risk premium
(E[RMkt] – RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the
end of 2015, when the share price was $42.96.
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