Case Study #3 - FA21 Page 4 of 6 Coca-Cola's Equity Coca-Cola has class A preferred stock priced at $29.45 that pays an annual dividend of $1.25. Question 2) KO's cost of preferred equity is You're also going to need some information on KO's common cquity. Rather than trudge back over to the Bloomberg terminal, you decide to just pull up a quick quote from Yahoo! Finance The Coca-Cola Company (KO) $49.58-0.23 (-0.43%) Summary chart 211.2000 MM 50.11 be 0.59 49 ST2200 Ratio (TTM) 25.69 49.50 1300PM 28, 2015 Feb 1, 2021 1027.6015 47. Dividende Nov 30, 2022 15.055.041 tys 5.40 The current yield on 10-year Treasury notes is 2.92%. You estimate the market risk premium to be 5.5%. Using this information, along with the beta of KO's common equity provided by Yahoo! in the above quote, calculate KO's cost of common equity using the capital asset pricing model (CAPM). Question 3) KO's cost of equity using CAPM is KO stock is priced at $49.58, you anticipate next year's dividend to be $1.56, and long-run carnings are expected to grow at 4%. Calculate the firm's cost of common cquity capital using the constant dividend growth model (CDGM). Question 4) KO's cost of equity using CDGM is Case Study #3 - FA21 Page 6 of 6 Cost of Issuing New Securities Coca-Cola plans on financing the entire investment via the issuance of new equity and debt. The issuance of these new securities will be structured so as not to alter the current capital structure of the firm (the relative weightings of common equity, preferred equity. and debt will remain unchanged). Coca-Cola will need to have $350 million left over after paying the underwriting fees related to the issuance of these new securities. Underwriting fees are determined based upon the size of the issuance. If Coca-Cola will have to pay a fee of 10% of the total amount of financing raised to the investment bank handling the issuance, what is the updated NPV of the project? Question 8) The NPV of the project, updated to reflect the underwriting fees, is: Please make sure that you submit a response for each question within the MyFinance Lab assignment, "Case Study #3 - FA21". Only one case study submission will be permitted. You will not immediately see your grade upon submitting your assignment. Case study grades will be available on December 6, 2021. Case Study #3 - FA21 Page 5 of 6 Capital Weightings and WACC Calculation The market values of KO's common stock and preferred stock are $211,296 million and $101 million, respectively. Coca-Cola has total debt outstanding with a face value of $35,665 million and a current market value of $44,910 million Question 5) KO's common equity weighting is KO's preferred equity weighting is KO's debt weighting is Calculate Coca-Cola's weighted average cost of capital (WACC) using the information you have collected thus far. Use of the cost of common equity capital determined using the constant dividend growth model (CDGM) approach in your calculation of WACC. Question 6) KO's WACC is Final NPV Calculation Calculate the NPV of the Coca-Cola YOU! project using the provided cash flows and the WACC you just calculated. Question 7) Project NPV: S Case Study #3 - FA21 Page 3 of 6 Provided Information: Coca-Cola's Debt You are aware that Coca-Cola recently issued a series of new 10-year notes. These notes will mature in 2031 and pay a semiannual coupon rate of 3.75%. This debt issuance was finalized last week and the bonds were issued at par You know that the company has a number of other bond issuances outstanding. You jump over to your department's Bloomberg terminal to pull up some information on the rest of KO's outstanding debt and pull up the following: The Coca-Cola Company (KO) Outstanding Long-Term Debt (All data as of November 24, 2021) Notes Issuance 4.25% Notes due in 2028 4.50% Notes due in 2029 3.75% Notes due in 2031 3.25% Bonds due in 2035 7.375% Bonds due in 2093 Face Value Current Price Current Yield Outstanding per $1,000 to-Maturity (in millions) Face Value IYTM 5 5,500 $ 1.030.87 3.75 7,765 1,051 42 3.75% 6,400 1000.00 3.75% 6,000 945.93 3.75% 10,000 1.900.06 3.75% "Most Recent Issue Total: s 35,665 Use the information provided thus far to calculate KO's effective cost of debt. Question 1) KO's effective cost of debt is Case Study #3 - FA21 Page 5 of 6 Capital Weightings and WACC Calculation The market values of KO's common stock and preferred stock are $211,296 million and $101 million, respectively. Coca-Cola has total debt outstanding with a face value of $35,665 million and a current market value of $44,910 million Question 5) KO's common equity weighting is KO's preferred equity weighting is KO's debt weighting is Calculate Coca-Cola's weighted average cost of capital (WACC) using the information you have collected thus far. Use of the cost of common equity capital determined using the constant dividend growth model (CDGM) approach in your calculation of WACC. Question 6) KO's WACC is Final NPV Calculation Calculate the NPV of the Coca-Cola YOU! project using the provided cash flows and the WACC you just calculated. Question 7) Project NPV: S Case Study #3 - FAZI Page 4 of 6 Coca-Cola's Equity Coca-Cola has class A preferred stock priced at $29.45 that pays an annual dividend of $1.25. Question 2) KO's cost of preferred equity is You're also going to need some information on KO's common cquity. Rather than trudge back over to the Bloomberg terminal, you decide to just pull up a quick quote from Yahoo! Finance The Coca-Cola Company (KO) $49.58-0.23 (-0.43%) NG Summary Chart Powe 211.2010 2010 MM - be 50.11 M 0.59 49.57-2200 (TTM 25.69 49.50 1200 133 20.2021 Feb 1, 2031 1027-60.13 Forward 3.4. de Nov 30, 2022 15.055,041 tyg 6.40 Www The current yield on 10-year Treasury notes is 2.92%. You estimate the market risk premium to be 5.5%. Using this information, along with the beta of KO's common equity provided by Yahoo! in the above quote, calculate KO's cost of common equity using the capital asset pricing model (CAPM) Question 3) KO's cost of equity using CAPM is KO stock is priced at $49.58, you anticipate next year's dividend to be $1.56, and long-run carnings are expected to grow at 4%. Calculate the firm's cost of common cquity capital using the constant dividend growth model (CDGM). Question 4) KO's cost of equity using CDGM is