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%.

The Coca-Cola YOU! platform will also allow the company to collect valuable data on consumer tastes and preferences that will be used in the development of future product offerings. Though this information is likely to prove valuable to the company in the future, it is not to be factored into the capital budgeting decision surrounding whether or not to launch the YOU! product.

You are aware that Coca-Cola recently issued a series of new 10-year notes. These notes will mature in 2030 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 departments Bloomberg terminal to pull up some information on the rest of KOs outstanding debt and pull up the following:

Use the information provided thus far to calculate KOs effective cost of debt.

KO's effective cost of debt capital is: nothing% (round to two decimal places)

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 2030 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 for period ending June 30, 2020) Notes Issuance 4.25% Notes due in 2028 4.50% Notes due in 2029 3.75% Notes due in 2030 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 (YTM) $ 5,500 $ 1,034.57 3.75% 7,700 1,056.84 3.75% 6,400 1,000.00 3.75% 6,000 943.03 3.75% 10,000 1,902.49 3.75% *Most Recent ssue Total: $ 35,600