Question
In: Finance
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.
Solutions
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 |
 jeff jeffy answered 1 year agoRelated SolutionsA group of 50 Coca-Cola Bottlers in the United States sued the Coca-Cola Company when it...
A group of 50
Coca-Cola Bottlers in the United States sued the Coca-Cola Company
when it announced a plan to ship its powerade sports drink directly
to Walmart warehouses, thus upsetting the established chain of
distribution. Coa-Cola uses a distribution system called
:direct-to-store delivery" that relies on the licensed bottlers to
package and deliver Coca-Cola products to retailers. Bottlers also
set up retail displays and stock the shelves. Rival Pepsi-Cola,
which markets Gatorade, the competitor to Powerade, ships its
products...
Let's assume that Coca-Cola has interest in developing a new drink for the United States. Identify...Let's assume that Coca-Cola has interest in developing a new
drink for the United States. Identify and describe one potential
market segment who could be interested in this new drink. Identify
your product strategy. Your product strategy will be specific to
the market segment that you have identified.
Question 3: Coca-Cola Corp. needs to purchase new plastic moulding machines to meet the demand for...Question 3: Coca-Cola Corp. needs to purchase new plastic
moulding machines to meet the demand for its product. The cost of
the equipment is $3,028,000. It is estimated that the firm will
increase after tax cash flow (ATCF) by $611,671 annually for the
next 5 years. The firm is financed with 40% debt and 60% equity,
both based on current market values, though the firm has announced
that it wants to quickly change its debt to equity ratio to 1.5....
Question 3: Coca-Cola Corp. needs to purchase new plastic moulding machines to meet the demand for...Question 3: Coca-Cola Corp. needs to purchase new plastic
moulding machines to meet the demand for its product. The cost of
the equipment is $3,028,000. It is estimated that the firm will
increase after tax cash flow (ATCF) by $611,671 annually for the
next 5 years. The firm is financed with 40% debt and 60% equity,
both based on current market values, though the firm has announced
that it wants to quickly change its debt to equity ratio to 1.5....
Today, most Japanese automobile companies have manufacturing plants in the United States. Honda, for example, exports...Today, most Japanese automobile companies have
manufacturing plants in the United States. Honda, for example,
exports from Japan only 21 percent of the cars it sells in the
United States. Fuji Heavy Industries whose main car brand is
Suburu, is an exception in still producing most of its cars in
Japan. An article in the Wall Street Journal observed that for Fuji
Heavy Industries, “the plunging ye has turned a problem – a
shortage of production in the US –...
Today, most Japanese automobile companies have manufacturing plants in the United States. Honda, for example, exports...Today, most Japanese automobile companies have
manufacturing plants in the United States. Honda, for example,
exports from Japan only 21 percent of the cars it sells in the
United States. Fuji Heavy Industries whose main car brand is
Suburu, is an exception in still producing most of its cars in
Japan. An article in the Wall Street Journal observed that for Fuji
Heavy Industries, “the plunging ye has turned a problem – a
shortage of production in the US –...
Your firm needs $15 million of new manufacturing equipment. If purchased, the equipment will be depreciated...Your firm needs $15 million of new manufacturing equipment. If
purchased, the equipment will be depreciated straight-line over
five years, after which you estimate you could sell the equipment
for $1.25 million. In this case, you are also responsible for $1
million per year of maintenance costs. If leased, the annual lease
payments will be $4.2 million per year for five years (beginning of
year payments). Maintenance is included with the lease, but the
lease does require a $0.5 million...
Your company needs $ 15 million to build a new assembly line. Your target debt-to-equity ratio...Your company needs $ 15 million to build a new assembly line.
Your target debt-to-equity ratio is 0.6. The cost of issuing new
equity is 8%, while the cost of issuing debt is 5%. What is the
real cost of the new assembly line if you factor in issuance
costs?
Suppose your company needs $10 million to build a new assembly line. Your target debt-equity ratio...
Suppose your company needs $10 million to build a new assembly
line. Your target debt-equity ratio is .4. The flotation cost for
new equity is 10 percent and the flotation cost for debt is 7
percent. Your boss has decided to fund the project by borrowing
money because the flotation costs are lower and the needed funds
are relatively small.
a.
What is your company’s weighted average flotation cost, assuming
all equity is raised externally? (Do not round intermediate
calculations...
Suppose your company needs $17 million to build a new assembly line. Your target debt−equity ratio...
Suppose your company needs $17 million to build a new assembly
line. Your target debt−equity ratio is .75. The flotation cost for
new equity is 10 percent, but the flotation cost for debt is only 7
percent. Your boss has decided to fund the project by borrowing
money because the flotation costs are lower and the needed funds
are relatively small.
a.
What is your company’s weighted average flotation cost, assuming
all equity is raised externally? (Do not round intermediate...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|