Actual Projected 2015 Year +1 Year +2 Year +3 Year +4 Year +5 Comprehensive income $ 2,954 $ 7342 $ 7,575 $ 7,803 $ 8,039 $ 8,283 Common shareholders' equity: Paid-in Capital $ 15,776 $ 15,723 $ 16,279 $ 16,839 $ 17,392 $ 17,939 Retained Earnings Treasury Stock 65,018 66,854 68,747 70,698 72,708 74,779 (45,066) (45,952) (47,818) (49,797) (51,892) (54,107) Accumulated Other Comprehensive Income (10,174) (10,174) (10,174) (10,174) (10,174) (10,174) $ 28,437 Total Common Equity $ 25,554 $ 26,451 $ 27,035 $ 27,566 $ 28,033 The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume that the risk-free interest rate (RE) is 3.0% and the market risk premium (E[RMrt]-RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the end of 2015. when the share price was $42.96.
Actual Projected 2015 Year +1 Year +2 Year +3 Year +4 Year +5 Comprehensive income $ 2,954 $ 7342 $ 7,575 $ 7,803 $ 8,039 $ 8,283 Common shareholders' equity: Paid-in Capital $ 15,776 $ 15,723 $ 16,279 $ 16,839 $ 17,392 $ 17,939 Retained Earnings Treasury Stock 65,018 66,854 68,747 70,698 72,708 74,779 (45,066) (45,952) (47,818) (49,797) (51,892) (54,107) Accumulated Other Comprehensive Income (10,174) (10,174) (10,174) (10,174) (10,174) (10,174) $ 28,437 Total Common Equity $ 25,554 $ 26,451 $ 27,035 $ 27,566 $ 28,033 The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume that the risk-free interest rate (RE) is 3.0% and the market risk premium (E[RMrt]-RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the end of 2015. when the share price was $42.96.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![Use the CAPM to compute the required rate of return on common equity
capital for Coca-Cola.
E[Rei] = RF + B;(E[RMrt] – Rp)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5392d40c-c2b0-441a-a483-051336786026%2Fed91f1ef-cfbc-4090-91dd-e97589c6bd9a%2Fh2a6k32o_processed.png&w=3840&q=75)
Transcribed Image Text:Use the CAPM to compute the required rate of return on common equity
capital for Coca-Cola.
E[Rei] = RF + B;(E[RMrt] – Rp)
![Dividends-Based Valuation of Common Equity. The Coca-Cola
Company is a global soft drink beverage company (ticker: KO) that is a primary
and direct competitor with Starbucks. The following data for Coca-Cola include
the actual amounts for 2015 and the projected amounts for Years +1 through +5
for comprehensive income and common shareholders' equity (amounts in
millions).
Actual
Projected
2015
Year +1
Year +2
Year +3
Year +4
Year +5
Comprehensive income
$ 2,954
$ 7,342
$ 7,575
$ 7,803
$ 8,039
$ 8,283
Common shareholders' equity:
Paid-in Capital
Retained Earnings
$ 15,776
$ 15,723
$ 16,279
$ 16,839
$ 17,392
$ 17,939
65,018
66,854
68,747
70,698
708ור
74,779
Treasury Stock
(45,066)
(45,952)
(47,818)
(49,797)
(51,892)
(54,107)
Accumulated Other
Comprehensive Income
(10,174)
(10,174)
$ 26,451
(10,174)
$ 27,035
(10,174)
$ 27,566
(10,174)
$ 28,033
(10,174)
Total Common Equity
$ 25,554
$ 28,437
The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume
that the risk-free interest rate (RF) is 3.0% and the market risk premium
(E[RMkt] – RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the
end of 2015, when the share price was $42.96.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5392d40c-c2b0-441a-a483-051336786026%2Fed91f1ef-cfbc-4090-91dd-e97589c6bd9a%2Fl7jia7c_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Dividends-Based Valuation of Common Equity. The Coca-Cola
Company is a global soft drink beverage company (ticker: KO) that is a primary
and direct competitor with Starbucks. The following data for Coca-Cola include
the actual amounts for 2015 and the projected amounts for Years +1 through +5
for comprehensive income and common shareholders' equity (amounts in
millions).
Actual
Projected
2015
Year +1
Year +2
Year +3
Year +4
Year +5
Comprehensive income
$ 2,954
$ 7,342
$ 7,575
$ 7,803
$ 8,039
$ 8,283
Common shareholders' equity:
Paid-in Capital
Retained Earnings
$ 15,776
$ 15,723
$ 16,279
$ 16,839
$ 17,392
$ 17,939
65,018
66,854
68,747
70,698
708ור
74,779
Treasury Stock
(45,066)
(45,952)
(47,818)
(49,797)
(51,892)
(54,107)
Accumulated Other
Comprehensive Income
(10,174)
(10,174)
$ 26,451
(10,174)
$ 27,035
(10,174)
$ 27,566
(10,174)
$ 28,033
(10,174)
Total Common Equity
$ 25,554
$ 28,437
The market equity beta (B;) for Coca-Cola at the end of 2015 is 0.75. Assume
that the risk-free interest rate (RF) is 3.0% and the market risk premium
(E[RMkt] – RE) is 6.0%. Coca- Cola had 4,324 million shares outstanding at the
end of 2015, when the share price was $42.96.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education