Coca-Cola has a stable capital structure, described below. You need to find its weighted average cost of capital (WACC).

Part A . Coca-Colas common equity, on average, moves 9% for every 10% move in the broader stock market. The risk-free rate is 3% and the market risk premium is 6%. Further, Coca-Cola will pay dividends of $10 billion to its equity investors next year. These dividend payments are expected to grow at 2% every year in perpetuity. Find the value of Coca-Colas equity.

Part B . Coca-Cola also has bonds outstanding. Each bond has a maturity of 1 year with a face value of $1,000 and pays annual coupons at a coupon rate of 10%. If the yield-to-maturity of the bonds is 5%, and there are 50 million bonds outstanding, find the value of all the bonds. (HINT: $1,000*50million=$50 billion, and $1,100*50million=$55 billion)

Part C . Coca-Cola has shares of preferred equity outstanding as well. Each share pays an annual dividend of $3 in perpetuity, and the share price is $40. What is the required return for preferred equity?

Part D . Coca-Cola has $5 billion in excess cash, and the preferred equity from part C is worth a total of $15 billion. Finally, the tax rate is 30%.

Using this and your solutions to A-C, find Coca-Colas WACC.

Part A: $124 B Part A: $156 B Part A: $170 B Part A: $229 B

Part B: $23 B Part B: $41 B Part B: $52 B Part B: $96 B

Part C: 3.0% Part C: 5.0% Part C: 7.5% Part C: 8.4%

Part D: 6.1% Part D: 7.3% Part D: 7.9% Part D: 8.4%