The Coca-Cola Company is a global soft drink beverage company (ticker symbol = KO) that is a primary and direct competitor with PepsiCo. The data in Exhibits 12.13–12.15 include the actual amounts for 2006, 2007, and 2008 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and statements of cash flows for Coca-Cola (in millions).
The market equity beta for Coca-Cola at the end of 2008 is 0.61. Assume that the risk-free interest rate is 4.0 percent and the market risk premium is 6.0 percent. Coca-Cola has 2,312 million shares outstanding at the end of 2008, when Coca-Cola’s share price was $44.42.

Required
Computing Coca-Cola’s Share Value Using Free Cash Flows to Common Equity Shareholders
a. Use the CAPM to compute the required rate of return on common equity capital for Coca-Cola.
b. Derive the projected free cash flows for common equity shareholders for Coca-Cola for Years +1 through +6 based on the projected financial statements. Assume that Coca-Cola’s changes in cash each year are necessary for operating liquidity purposes. The financial statement forecasts for Year +6 assume that Coca-Cola will experience a steady-state long-run growth rate of 3 percent in Year +6 and beyond.
c. Using the required rate of return on common equity from Part a as a discount rate, compute the sum of the present value of free cash flows for common equity shareholders for Coca-Cola for Years +1 through +5.
d. Using the required rate of return on common equity from Part a as a discount rate and the long-run growth rate from Part b, compute the continuing value of Coca-Cola as of the start of Year +6 based on Coca-Cola’s continuing free cash flows for common equity shareholders in Year +6 and beyond. After computing continuing value as of the start of Year +6, discount it to present value at the start of Year +1.
e. Compute the value of a share of Coca-Cola common stock.
(1) Compute the total sum of the present value of all future free cash flows for equity shareholders (from Parts c and d).
(2) Adjust the total sum of the present value using the midyear discounting adjustment factor.
(3) Compute the per-share value estimate.