The Coca Cola Company current (fiscal year 2014) earnings per sliare are al $1.62. Its book valic of quity per share is at $6.97 on Dec 31 2014. KO is trading on Dec 31 2014 at $42.76. It has 4.387 million shares outstanding. You project earnings per share and dividends per share for the years 2015-2019 to be as per the following lable. Assume that the cost of equity for KO is at 10% per year. Fiscal Year ending Dec 31 2015 2016 2017 2018 2019 Farnings 1.67 1.54 0.30 1.52 2.10 Dividends 1.23 1.36 1.44 1.52 1.58 a. Compute the book value, return on common cquity and residual camnings for cach of the years 2015-2019. b. Calculate the per-shore value of the equity liom the pro umma statements using the book value as an anchor. Assume that residual carnings will grow after 2019 at 4%. C. As a financial analyst, would you rate KO at year end 2014 as buy, hold or sell? Explain your ILWET J. Provide une disadvantage for the residual camings valuation method. Question 4 (20 marks) (Use the data from the previous question) a Compute cut-dividend earnings, normal canings and abmal carvings growth (AEG) for cach of the years 2015-2019 b. Confirm that AEG is the change in residual income for the year 2016. c. Compute the growth in cum-dividend earnings for the years 2016 2017 2018 and 2019. d. Assume that abnormal earnings growth (AEG) will grow forever after 2020 at 4%. Calculate the pai-share value of the equity at the end of 2014 using the AEG based valuation. c. What is the actual forward PE ratio for this firm? Compac it to the normal PE. Explain why they are equal or different. The Coca Cola Company current (fiscal year 2014) earnings per sliare are al $1.62. Its book valic of quity per share is at $6.97 on Dec 31 2014. KO is trading on Dec 31 2014 at $42.76. It has 4.387 million shares outstanding. You project earnings per share and dividends per share for the years 2015-2019 to be as per the following lable. Assume that the cost of equity for KO is at 10% per year. Fiscal Year ending Dec 31 2015 2016 2017 2018 2019 Farnings 1.67 1.54 0.30 1.52 2.10 Dividends 1.23 1.36 1.44 1.52 1.58 a. Compute the book value, return on common cquity and residual camnings for cach of the years 2015-2019. b. Calculate the per-shore value of the equity liom the pro umma statements using the book value as an anchor. Assume that residual carnings will grow after 2019 at 4%. C. As a financial analyst, would you rate KO at year end 2014 as buy, hold or sell? Explain your ILWET J. Provide une disadvantage for the residual camings valuation method. Question 4 (20 marks) (Use the data from the previous question) a Compute cut-dividend earnings, normal canings and abmal carvings growth (AEG) for cach of the years 2015-2019 b. Confirm that AEG is the change in residual income for the year 2016. c. Compute the growth in cum-dividend earnings for the years 2016 2017 2018 and 2019. d. Assume that abnormal earnings growth (AEG) will grow forever after 2020 at 4%. Calculate the pai-share value of the equity at the end of 2014 using the AEG based valuation. c. What is the actual forward PE ratio for this firm? Compac it to the normal PE. Explain why they are equal or different
