Coca-Cola Company (KO) paid a common dividend of $1.48 in 2017. The cost of equity is...

Coca-Cola Company (KO) paid a common dividend of $1.48 in 2017. The cost of equity is 3.0%, market return is 6%, and a 10-year Treasury note rate is 2%. You decided to value KO’s stock to determine whether it is under-valued. You gathered the following information:

The before-tax cost of debt is 6 percent.
The company’s target capital structure is financed 25 percent debt, 25 percent preferred stock, and 50 percent common stock.
The cost of preferred stock is 4 percent.
Common dividend is expected to grow at 5 percent in 2018, 2019, and 2020. It will grow at 3 percent in 2021, and then stabilizes at a long-term growth rate of 2%.
Corporate tax rate is 25%

What is the expected KO’s market price per share at the end of 2021?

		About $171
		About $177
		About $180
		About $109.38

Expert Solution

jeff jeffy answered 8 months ago

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