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) Coca-Cola: Residual Income Valuation 113-056 Exhibit 1 Coca-Cola, Balance Sheet and Income Statement (in $ millions) BALANCE SHEET December 31, December 31, 2009 2010 ASSETS Cash and Marketable Securities Accounts Receivable 9,409 3,758 2,354 11,511 4,430 2,650 2,988 21,579 Inventory Other Currents Assets TOTAL CURRENT ASSETS 2,030 17,551 Long-Term Tangible Assets Long-Term Intangible Assets Other Long-Term Assets TOTAL LONG-TERM ASSETS 11441 16,672 26,909 7,663 51,244 72,823 12.828 6,755 31,024 48,575 TOTAL ASSETS LIABILITIES Accounts Payable Short-Term Debt Other Current Liabilities TOTAL CURRENT LIABILITIES 1,410 6,800 5,511 1,887 9,376 7,245 18,508 13,721 Long-Term Debt Deferred Taxes 5,059 1,484 2,965 9,508 14,041 4,163 4,794 Other Long-Term Liabilities TOTAL LONG-TERM LIABILITIES 22,998 SHAREHOLDERS' EQUITY Minority Interest Common Shareholders' Equity (2,303 and 2,292 million shares outstanding) 547 314 24,799 31,003 72,823 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 48,575 December 31, 2008 December 31, December 31, INCOME STATEMENT For the years ended 2009 2010 $ 31,944 10,146 21,798 $ 30,006 $ 35.200 SALES Cost of Goods Sold 9,864 21,142 11,234 23,966 GROSS PROFIT Selling, General, and Administrative Other Operating Expenses 11,774 11,381 1,343 8,418 13,179 1,703 9,084 5,312 1,283 8,741 OPERATING INCOME Other Income 53 92 Other Expense Interest Income (1,976) 33 (253) 249 (887) 317 Interest Expense Minority Interest PRETAX INCOME (438) C (341) (82) 8,083 (608) (50) 13,168 2.384 6,713 1,632 726 Tax Expense Unusual Gains, Net of Unusual Losses NET INCOME 2,040 781 S 6,824 1,025 $ 11.809 5,807 Source: Capital IQ en 113-056 Coca-Cola: Residual Income Valuation Exhibit 2a Coca-Cola, Condensed Balance Sheet (in $ millions) January 1, As of January 1, 2011 January 1, 2009 2010 Beginning Net Working Capital Beginning Net Long-Term Assets NET OPERATING ASSETS $ 24,065 24,805 1.221 S 936 740 41,973 26,028 42,909 27,249 Net Debt 2,450 11,906 4,333 0 Preferred Stock Shareholders' Equity NET CAPITAL 20,472 24,799 31,003 24,8 27,249 42,909 Exhibit 2b Coca-Cola, Condensed Income Statement (in $ millions) For the year ending December 31, 2008 December 31, December 31, 2009 2010 Sales $ 35,200 31,944 31,006 NOPAT 5,886 6,892 12,047 238 Net Interest Expense After Tax 79 69 5,807 NET INCOME 6,824 11,809 0 11,809 Less: Preferred Dividends C NET INCOME TO COMMON SHAREHOLDERS 5,807 6,824 Source: Casewriter. Coca-Cola, Forecasting Assumptions Exhibit 3 Panel A. Cost of Capital Parameters Market Risk Premium 5.0% 3.0 % Risk-Free Rate Tax Rate Cost of Debt Common Equity Beta 35.0 % 4.5% 0.6 Panel B. Future Performance Forecasts 2011 2012 Terminal 8.0% 10.0 % 3.0% Sales Growth Rate 20.0% 20.0% 15.0% NOPAT /Sales Beginning Net Operating Working Capital / Sales Beginning Net Operating Long-Term Assets / Sales 3.0% 3.0% 105.0 % 100.0 % 27.75% 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% 00 % 0.0% 0.0% 72.25% 72.25% 72.25% Source: Casewriter ..e CIN can6 PMBA Dr DiCioco Summer 19 at Florida Allantic Unieersity from Jun 2019 1o Ncw 2019