113-056- Coca-Cola: Residual Income Valuation Exhibit 1 Coca-Cola, Balance Sheet and Income Statement (in $ millions) December 31, 2010 December 31, BALANCE SHEET 2009 ASSETS 11,511 4,430 2,650 9,409 3,758 2,354 2,030 17,551 5 Cash and Marketable Securities Accounts Receivable Inventory Other Currents Assets 2,988 21,579 TOTAL CURRENT ASSETS 11,441 12,828 6,755 31,024 48,575 16,672 26,909 7,663 Long-Term Tangible Assets Long-Term Intangible Assets Other Long-Term Assets TOTAL LONG-TERM ASSETS 51.244 72,823 $ TOTAL ASSETS LIABILITIES 1,887 9,376 S S 1,410 Accounts Payable Short-Term Debt 6,800 5,511 13,721 7,245 Other Current Liabilities 18,508 TOTAL CURRENT LIAB1ILITIES 14,041 Long-Term Debt Deferred Taxes Other Long-Term Liabilities TOTAL LONG-TERM LIABILITIES 5,059 4.163 1,484 2,965 9,508 4,794 22,998 SHAREHOLDERS' EQUITY Minority Interest Common Shareholders' Equity (2,303 and 2,292 million shares outstanding) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 547 314 24.799 31,003 S S 48,575 72,823 December 31, December 31, December 31, INCOME STATEMENT For the vears ended 2008 2009 2010 S 31,944 $ 30,006 $ 35,200 11,234 23,966 SALES Cost of Goods Sold GROSS PROFIT 10,146 9,864 21,142 11,381 21,798 Selling, General, and Administrative Other Operating Expenses OPERATING INCOME 11,774 13,179 1,703 9,084 5,312 (887) 317 1,283 1,343 8,418 8,741 Other Income 53 92 Other Expense (1,976) (253) Interest Income 333 249 Interest Expense Minority Interest PRETAX INCOME Tax Expense Unusual Gains, Net of Unusual Losses (438) 0 (341) (82) 8,083 2,040 (608) (50) 13,168 2,384 6,713 1,632 726 781 1,025 S 11,809 NET INCOME S 5,807 $ 6,824 Source: Capital IQ 3 This document is authorized for use onlvin loal DICieon'e Eli FOOC DUOID Coca-Cola: Residual Income Valuation 113-056 Coca-Cola, Condensed Balance Sheet (in $ millions) Exhibit 2a January 1, 2011 January 1, 2010 January 1, 2009 As of 936 1,221 26.028 740 24,065 24,805 Beginning Net Working Capital Beginning Net Long-Term Assets NET OPERATING ASSETS S 41,973 42,909 27,249 11,906 2,450 0 24,799 27,249 Net Debt Preferred Stock Shareholders' Equity NET CAPITAL 4,333 C 31,003 20,472 42,909 $ S 24,805 Coca-Cola, Condensed Income Statement (in $ millions) Exhibit 2b December 31, 2010 December 31, 2009 For the year ending December 31, 2008 $ 35,200 31.006 Sales 4 S 31,944 5,886 6,892 12,047 238 NOPAT Net Interest Expense After Tax NET INCOME Less: Preferred Dividends NET INCOME TO COMMON SHAREHOLDERS 79 69 5,807 6,824 11,809 0 6,824 5,807 11,809 Source: Casewriter. Coca-Cola, Forecasting Assumptions Exhibit 3 Panel A. Cost of Capital Parameters Market Risk Premium. Risk-Free Rate Tax Rate Cost of Debt 5.0% 3.0% 35.0% 4.5% Common Equity Beta 0.6 Panel B. Future Performance Forecasts Terminal 2011 2012 Sales Growth Rate NOPAT /Sales Beginning Net Operating Working Capital /Sales Beginning Net Operating Long-Term Assets / Sales 8.0% 3.0% 15.0 % 10.0% 20.0 % 20.0% 3.0% 105.0% 3.0% 100.0% Net Debt / Book Value of Net Capital Preferred Equity / Book Value of Net Capital Shareholders' Equity / Book Value of Net Capital 27.75% 27.75% 27.75% 0.0% 0.0% 0.0% 72.25% 72.25% 72.25% Source: Casewriter. Please show your work for partial credit. Simply providing me answers from spreadsheet calculations will not suffice unless explained. a) Using the information provided in the case study, calculate the Weighted Average Cost of Capital. b) Using the information provided in the case study, please calculate the value of Coca-Cola stock using the Income Method taught in class. (NOTE: The case stated the Residual Income Method-DO NOT USE THAT APPROACH. IT WAS NOT EVEN TAUGHT)