Question

1 Approved Answer

Posted on Jul 29, 2024

I provided the instructions on the last attachment. I would really love getting insight on what numbers I am supposed to use to solve those

I provided the instructions on the last attachment. I would really love getting insight on what numbers I am supposed to use to solve those steps. I added the bond information and put 20 year maturity on the spreadsheet with the 27 bonds on it because i think that's what the instructions say but im not sure if its right. I think I computed the Market value of KO's debt but im not sure if that is right either. Most importantly, I have no idea how to find weight of debt and weight of equity.. and what is the difference between "weight of equity" and ""KO's weighted costbof equity?" Also, I am not sure where to add that 30% tax rate to "calculate its effective cost of debt capital." I have been working on this for a week and I am getting nowhere. I would really appriciate to know how to accomplish this. Thank you. image text in transcribed

6 Yield for 10 year Treasury bonds: 0.5950% 7 3 KO's Market Capitalization: 9 4.29 48.48 207.98 10% 0.54 0.0567 E(RI) - Rf + [E(RM) - Rf]* BI LO Number of Shares Outstanding 1 KO's Current Stock Price 12 KO's Market Capitalization 13 4 KO's Cost of Equity Calcultion 15 Market Risk Premium (Given in the instructions) 6 KO Beta 17 KO's cost of equity using CAPM 18 19 0 KO's cost of debt: 31 22 Coca Colas Longet Maturity Bond: 3 Current Price 4 Offer Price 5 Why is there such a difference? 26 Issued: 7/29/1993. Maturity date: 7/29/2093. 5 95,835,000 $ 98.93 98.93 billion was offered originally There is a big difference here with this bond because it was issued in 1993, which is now, 27 years ago Yeild is 3.44 and the coupon rate is 7.357%, as stated in the bonds details. Here, the yield is high compared to the average return on a maturity bond. But since the coupon rate is higher, the bonds price will rise. Because the coupon rate is high, the blond is more valuable due to the fact the bond pays more interest per year. 28684514.1 Remember to use the information of only Coca Cola Company bonds 17 28 0 Total market value of KO's debt: 2 Weight of debt: 33 Weight of equity: 54 35 KO's weighted cost of equity: 36 37 KO's WACC: 38 Cailable Coupon Market value of Bond 196415.7992 3007200.000 Market value of Kos Debt 2014.035 5 luer Name 6 Coca Cola Co 7 Coca Cola Co 8 Coca Cola Co 9 Coca Cola Co 10 Coca Cola Co 11 Coca Cola Co 12 Coca Cola Co 13 Coca Cola Co 14 Coca Cola Co. 15 Coca Cola Co 16 Coca Cola Co 17 Coca Cola Co. 18 Coca Cola Co 19 Coca Cola Co 20 Coca Cola Co. 21 Coca Cola Co 22 Coca Cola Co 23 Coca Cola Co 24 Coca Cola Co 25 Coca Cola 26 Coca Cola 27 Coca Cola 28 Coca Cola 29 Coca Cola co 30 Coca Cola Co 31 Coca Cola Co 32 Coca Cola Co Bond Symbol Da KO GO GP KOGU KO96546 KO4056196 K04056189 K0430385 K0430381 KD4999 K04399370 04491432 04499433 KORTOS KOLEJOS KOU09576 KD490956 KO995 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Maturity 7.37 20 year 3.150 20 year 3.300 20 year 3.300 20 year 2.500 20 year 2450 20 year 3.200 20 year 1.875 20 year 2.8S 20 year 2.550 20 year 1.550 20 2.250 20 year 2.200 20 year 2.900 20 year 1.750 20 year 2.125 20 year 2.950 20 year 3.375 20 year 3450 20 year 4.125 20 year 4.200 20 year 1450 20 year 1.650 20 year 2.500 20 year 2.600 20 year 2.790 20 year 3.100 20 year Amount Outstanding Market value of ne 3.440 95.235.00 $204.52 0.804 1,000,000.00 $100.720 350.00 0.272 1.32400.00 $103.332 0.273 750,000.00 $105956 1112 1.250,000.00 $100.352 0316 1,500,000.00 $109.373 02 1.500.000.00 $100.413 0,658 1.750,000.00 $111.440 0.717 500.000.00 $110.487 1.000.000.00 $101.617 0.630 1,000,000.00 $109.6M 500,000.00 $103.761 0911 500,000.00 $113.153 0.42 1,000,000.00 $105 122 1154 1,000,000.00 $108319 0.600 1.000.000.00 $110.04 1,000,000.00 $116.013 1.204 1.250,000.00 $120.400 2.101 500,000.00 $132.47 2335 1.250,000.00 $139.758 0.829 1,500,000.00 $104130 1154 1,500,000.00 $101.606 2015 1.000.000.00 $107.02 1.500,000.00 $106.720 2.400 1,000,000.00 S10871 $102.370 136819146 794570.000 125600 000 195.000 1505195.000 1950200.000 553435.000 1016170.000 3095840.000 SIRROS.000 565765.000 1051220.000 1083790.000 110800.000 1160110.000 1505500.000 562370.000 176975.000 156190.000 156200.000 107900 000 160000.000 108 140.000 MOHDET MOS MO MO421 NO.60 Assume that Coca Cola Co's policy is to use the yield to maturity of 20 year obligations as its cost of debt. Find the yield to maturity for your chosen bond issue (it is in the column titled "Yield") and enter that yield as your pretax cost of debt into your spreadsheet. Calculate the market value of the debt. The price for each bond issue in your spreadsheet is reported as a percentage of the bond's par value. For example, 104.50 means that the bond issue is trading at 104.5% of its par value. You can calculate the market value of each bond issue by multiplying the amount outstanding by Price /100. Do so for each issue and then calculate the total of all the bond issues. This is the market value of Coca Cola's debt. Compute the weights for Coca Cola's equity and debt based on the market value of equity (Market Capitalization) and Coca Cola's market value of debt, computed in step 7. Assuming that Coca Cola has a tax rate of 30%, calculate its effective cost of debt capital. 6 Yield for 10 year Treasury bonds: 0.5950% 7 3 KO's Market Capitalization: 9 4.29 48.48 207.98 10% 0.54 0.0567 E(RI) - Rf + [E(RM) - Rf]* BI LO Number of Shares Outstanding 1 KO's Current Stock Price 12 KO's Market Capitalization 13 4 KO's Cost of Equity Calcultion 15 Market Risk Premium (Given in the instructions) 6 KO Beta 17 KO's cost of equity using CAPM 18 19 0 KO's cost of debt: 31 22 Coca Colas Longet Maturity Bond: 3 Current Price 4 Offer Price 5 Why is there such a difference? 26 Issued: 7/29/1993. Maturity date: 7/29/2093. 5 95,835,000 $ 98.93 98.93 billion was offered originally There is a big difference here with this bond because it was issued in 1993, which is now, 27 years ago Yeild is 3.44 and the coupon rate is 7.357%, as stated in the bonds details. Here, the yield is high compared to the average return on a maturity bond. But since the coupon rate is higher, the bonds price will rise. Because the coupon rate is high, the blond is more valuable due to the fact the bond pays more interest per year. 28684514.1 Remember to use the information of only Coca Cola Company bonds 17 28 0 Total market value of KO's debt: 2 Weight of debt: 33 Weight of equity: 54 35 KO's weighted cost of equity: 36 37 KO's WACC: 38 Cailable Coupon Market value of Bond 196415.7992 3007200.000 Market value of Kos Debt 2014.035 5 luer Name 6 Coca Cola Co 7 Coca Cola Co 8 Coca Cola Co 9 Coca Cola Co 10 Coca Cola Co 11 Coca Cola Co 12 Coca Cola Co 13 Coca Cola Co 14 Coca Cola Co. 15 Coca Cola Co 16 Coca Cola Co 17 Coca Cola Co. 18 Coca Cola Co 19 Coca Cola Co 20 Coca Cola Co. 21 Coca Cola Co 22 Coca Cola Co 23 Coca Cola Co 24 Coca Cola Co 25 Coca Cola 26 Coca Cola 27 Coca Cola 28 Coca Cola 29 Coca Cola co 30 Coca Cola Co 31 Coca Cola Co 32 Coca Cola Co Bond Symbol Da KO GO GP KOGU KO96546 KO4056196 K04056189 K0430385 K0430381 KD4999 K04399370 04491432 04499433 KORTOS KOLEJOS KOU09576 KD490956 KO995 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Maturity 7.37 20 year 3.150 20 year 3.300 20 year 3.300 20 year 2.500 20 year 2450 20 year 3.200 20 year 1.875 20 year 2.8S 20 year 2.550 20 year 1.550 20 2.250 20 year 2.200 20 year 2.900 20 year 1.750 20 year 2.125 20 year 2.950 20 year 3.375 20 year 3450 20 year 4.125 20 year 4.200 20 year 1450 20 year 1.650 20 year 2.500 20 year 2.600 20 year 2.790 20 year 3.100 20 year Amount Outstanding Market value of ne 3.440 95.235.00 $204.52 0.804 1,000,000.00 $100.720 350.00 0.272 1.32400.00 $103.332 0.273 750,000.00 $105956 1112 1.250,000.00 $100.352 0316 1,500,000.00 $109.373 02 1.500.000.00 $100.413 0,658 1.750,000.00 $111.440 0.717 500.000.00 $110.487 1.000.000.00 $101.617 0.630 1,000,000.00 $109.6M 500,000.00 $103.761 0911 500,000.00 $113.153 0.42 1,000,000.00 $105 122 1154 1,000,000.00 $108319 0.600 1.000.000.00 $110.04 1,000,000.00 $116.013 1.204 1.250,000.00 $120.400 2.101 500,000.00 $132.47 2335 1.250,000.00 $139.758 0.829 1,500,000.00 $104130 1154 1,500,000.00 $101.606 2015 1.000.000.00 $107.02 1.500,000.00 $106.720 2.400 1,000,000.00 S10871 $102.370 136819146 794570.000 125600 000 195.000 1505195.000 1950200.000 553435.000 1016170.000 3095840.000 SIRROS.000 565765.000 1051220.000 1083790.000 110800.000 1160110.000 1505500.000 562370.000 176975.000 156190.000 156200.000 107900 000 160000.000 108 140.000 MOHDET MOS MO MO421 NO.60 Assume that Coca Cola Co's policy is to use the yield to maturity of 20 year obligations as its cost of debt. Find the yield to maturity for your chosen bond issue (it is in the column titled "Yield") and enter that yield as your pretax cost of debt into your spreadsheet. Calculate the market value of the debt. The price for each bond issue in your spreadsheet is reported as a percentage of the bond's par value. For example, 104.50 means that the bond issue is trading at 104.5% of its par value. You can calculate the market value of each bond issue by multiplying the amount outstanding by Price /100. Do so for each issue and then calculate the total of all the bond issues. This is the market value of Coca Cola's debt. Compute the weights for Coca Cola's equity and debt based on the market value of equity (Market Capitalization) and Coca Cola's market value of debt, computed in step 7. Assuming that Coca Cola has a tax rate of 30%, calculate its effective cost of debt capital