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Instructions- Amount Coca-Cola Needs: $5,000 million to build four new manufacturing plants outside the United States;...
Instructions- Amount Coca-Cola Needs: $5,000 million to build four new manufacturing plants outside the United States; Interest rate: 5%, Tax Rate: 21%, Stock Price: $45.54 as of January 2,2018, Number of Shares Outstanding: 4255 million, EBIT: Pessimistic: $7,000 million, Realistic: $9,000 million, Optimistic: $11,000 million. We must develop a projected income statement and balanced sheet for Coca-Cola. Assume it needs to raise $1 billion to increase its market share, and plans to obtain 50% financing from a bank and 50% financing from a stock issuance. My question is for exercise 8C Determine the Cash Value of Coca-Cola. Step 1 is to calculate the financial wroth of Coca-Cola based on four approaches: (1) the net worth method, (2) the net income method, (3) the price-earnings ratio method, and (4) the outstanding shares method.
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Expert Solution
| Values from Question | |
| Required Fund = | $ 5,000.00 |
| Interest rate = | 5% |
| Stock Price = | 45.54 |
| No.of shares outstanding | 4,255.00 |
| 100% Debt Scenario | |||
| Pessimistic | Realistic | Optimistic | |
| EBIT | $ 7,000.00 | $ 9,000.00 | $ 11,000.00 |
| Less: | |||
| Interest (5000 @ 5%) | $ 250.00 | $ 250.00 | $ 250.00 |
| Profit Before Tax | $ 6,750.00 | $ 8,750.00 | $ 10,750.00 |
| Less: | |||
| Tax @ 21% on PBT | $ 1,417.50 | $ 1,837.50 | $ 2,257.50 |
| Profit After Tax | $ 5,332.50 | $ 6,912.50 | $ 8,492.50 |
| No.of shares outstanding | $ 4,255.00 | $ 4,255.00 | $ 4,255.00 |
| EPS | $ 1.25 | $ 1.62 | $ 2.00 |
| Balancesheet | |||||||
| Liabilities and Equity | Pessimistic | Realistic | Optimistic | Assets | Pessimistic | Realistic | Optimistic |
| Common Shares | $ 193,772.70 | $ 193,772.70 | $ 193,772.70 | Cash | $ 204,105.20 | $ 205,685.20 | $ 207,265.20 |
| Additional Shares | $ - | $ - | $ - | ||||
| Retianed Earnings | $ 5,332.50 | $ 6,912.50 | $ 8,492.50 | ||||
| Long term debt | $ 5,000.00 | $ 5,000.00 | $ 5,000.00 | ||||
| Total | $ 204,105.20 | $ 205,685.20 | $ 207,265.20 | $ 204,105.20 | $ 205,685.20 | $ 207,265.20 |
| 100% Stock Scenario | |||
| Pessimistic | Realistic | Optimistic | |
| EBIT | $ 7,000.00 | $ 9,000.00 | $ 11,000.00 |
| Less: | |||
| Interest | $ - | $ - | $ - |
| Profit Before Tax | $ 7,000.00 | $ 9,000.00 | $ 11,000.00 |
| Less: | |||
| Tax @ 21% on PBT | $ 1,470.00 | $ 1,890.00 | $ 2,310.00 |
| Profit After Tax | $ 5,530.00 | $ 7,110.00 | $ 8,690.00 |
| No.of shares outstanding | $ 4,255.00 | $ 4,255.00 | $ 4,255.00 |
| Additional Shares | $ 109.79 | $ 109.79 | $ 109.79 |
| EPS | $ 1.27 | $ 1.63 | $ 1.99 |
| Balancesheet | |||||||
| Liabilities and Equity | Pessimistic | Realistic | Optimistic | Assets | Pessimistic | Realistic | Optimistic |
| Common Shares | $ 193,772.70 | $ 193,772.70 | $ 193,772.70 | Cash | $ 204,302.70 | $ 205,882.70 | $ 207,462.70 |
| Additional Shares | $ 5,000.00 | $ 5,000.00 | $ 5,000.00 | ||||
| Retianed Earnings | $ 5,530.00 | $ 7,110.00 | $ 8,690.00 | ||||
| Long term debt | $ - | $ - | $ - | ||||
| Total | $ 204,302.70 | $ 205,882.70 | $ 207,462.70 | $ 204,302.70 | $ 205,882.70 | $ 207,462.70 |
| 50-50 Combination of debt and stock | |||
| Pessimistic | Realistic | Optimistic | |
| EBIT | $ 7,000.00 | $ 9,000.00 | $ 11,000.00 |
| Less: | |||
| Interest (2500 @5%) | $ 125.00 | $ 125.00 | $ 125.00 |
| Profit Before Tax | $ 6,875.00 | $ 8,875.00 | $ 10,875.00 |
| Less: | |||
| Tax @ 21% on PBT | $ 1,443.75 | $ 1,863.75 | $ 2,283.75 |
| Profit After Tax | $ 5,431.25 | $ 7,011.25 | $ 8,591.25 |
| No.of shares outstanding | $ 4,255.00 | $ 4,255.00 | $ 4,255.00 |
| Additional shares | $ 54.90 | $ 54.90 | $ 54.90 |
| EPS | $ 1.26 | $ 1.63 | $ 1.99 |
| Balancesheet | |||||||
| Liabilities and Equity | Pessimistic | Realistic | Optimistic | Assets | Pessimistic | Realistic | Optimistic |
| Common Shares | $ 193,772.70 | $ 193,772.70 | $ 193,772.70 | Cash | $ 204,203.95 | $ 205,783.95 | $ 207,363.95 |
| Additional Shares | $ 2,500.00 | $ 2,500.00 | $ 2,500.00 | ||||
| Retianed Earnings | $ 5,431.25 | $ 7,011.25 | $ 8,591.25 | ||||
| Long term debt | $ 2,500.00 | $ 2,500.00 | $ 2,500.00 | ||||
| Total | $ 204,203.95 |
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