After reviewing the discounted cash flow valuation of Coca-Cola in Exhibit 4.1, consider the free cash flows below that were reported by Coke for 2004-2007. They are based on the actual reported cash flows but are adjusted for interest and investments in interest-bearing securities {in millions of dollars}.

discounted cash flow valuation of Coca-Cola " class="fr-fic fr-dii">

Pretend that you are sitting at the beginning of 2004, trying to value Coke, given these numbers as forecasts. What difficulties would you encounter in trying to value the firm at the beginning of 2004? What do you make of the declining free cash flows over the fouryears?

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2004 2005 2006 2007 Cash fiow from operations Cash investments Free cash flow 5,929 618 5,311 6,421 ,496 4925 S5,969 2,258 3,711 $7.258 7,068 190