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?
2. EMC Corporation has never paid a dividend. Its current free cash flow is $510,000 and is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 9%. Calculate EMC’s equity value if the net debt is $750,000.