Coca-Cola (KO) using the CAPM

Apr 15th, 2015
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1. Estimate the cost of equity for Coca-Cola (KO) using the CAPM. (Use 10 year Treasury for the Risk Free Rate and use the beta from yahoo finance. Review the dividend history. Estimate the 2015 dividend. Use a multistage dividend discount model where the dividend growth rate slows from its current growth rate to 4% forever after 10 years. What is your estimated value of KO?

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SolutionData: Risk-free rate (rf) = 5%; Expected rate of return on SP500 [E(rM)] = 13%growthrateto4%foreverafter10yearsFormulaE(RKO) =RF+ ?KO[E(RM) -RF] = 4% + 5% (13% - 4%)= 4.45%

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