PLEASE ANSWER 5-8

The Coca-Cola Company (ticker: KO), along with its North American anchor bottler Coca-Cola Refreshments, is considering launching a new product. This new product, Coca-Cola YOU!, will allow customers to customize the flavor of their soda at the point of sale. This project requires an initial investment at t=0 of$350 million. KO expects that cash flows in the first year of the project will be $20 million, growing to $30 million in year 2, and growing by 3% per year from year 3 onward. KO pays a corporate tax rate of 35%.Assume that the market risk of this project is the same as that for Coca-Colas overall business. You have been asked by your manager to determine the NPV of this project. Unfortunately, before your manager left for lunch, you forgot to ask what the appropriate weighted average cost of capital is to use in your analysis. Your manager wants this analysis completed ASAP and you decide you cannot wait. Over the next few questions, you will determine the information necessary to complete your analysis.

1) Coca-Cola has debt due in 2028 with a coupon rate of 6.75%, priced at $1,248.26 per $1,000 face value. The YTM on this debt is 3.75%. What is KO's effective cost of debt capital? 2.44%

2) Coca-Cola has class A preferred stock priced at $29.45 that pays an annual dividend of $1.25. What is KO's cost of preferredequity? 4.24%

3) KOs equity Beta is 0.59. The current yield on 10-year Treasury notes is 2.92%. You estimate the market risk premium to be 5.5%. Estimate KO's cost of common equity capital using the capital asset pricing model (CAPM). 6.17%

4) KO stock is currently priced at $49.58, you anticipate nextyears dividend to be $1.56, and long-run earnings are expected to grow at 4%. You expect KO's dividend payout rate to be constant. Estimate KO's cost of common equity capital using the constant dividend growth model (CDGM). 7.15%

5) The market values of KOs common stock, preferred stock, and debt are $211,296 million, $101 million, and $44,910 million respectively. Determine the appropriate weights to use for each source of capital in your WACC calculation. Express your calculated weights in %.

6) Calculate Coca-Cola's weighted average cost of capital(WACC) using the information you have collected in the previous questions.Use the cost of equity capital determined using the constant dividend growth model (CDGM) approach in your calculation of WACC.

7) Now that you have determined the appropriate WACC to use in your capital budgeting analysis, you can proceed. Calculate the net present value (NPV) of the Coca-Cola YOU! investment opportunity described above.

The NPV of the project is:__million (round to two decimalplaces)

Based on your analysis, should Coca-Cola pursue this investment opportunity?

8) Coca-Cola plans on financing the entire investment via the issuance of new equity and debt. These new issues will be structured so as not to alter the current capital structure of the firm (the relative weightings of common equity, preferredequity, 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 4% of the total amount of financing raised to the investment bank handling the issuance, what is the updated NPV of the project?

The NPV of the project, updated to reflect the underwritingfees, is:__million (round to two decimal places)