$11\mathrm{.}14$ Dividends$-$Based Valuation of Common Equity.

The Coca$-$Cola Company is a global soft drink beverage company $($ticker: KO$).$ The following data for Coca$-$Cola include the actual amounts for Year $0$ and the projected amounts for Years $+1$ through $+5$ for comprehensive income and common shareholders$$ equity $($amounts in millions$).$

Assume the market equity beta for Coca$-$Cola at the end of Year $0$ is $0\mathrm{.}75.$ Assume that the risk$-$free interest rate is $3\mathrm{.}0\%$ and the market risk premium is $6\mathrm{.}0\%.$ Coca$-$Cola had $4,324$ million shares outstanding at the end of Year $0,$ when the share price was $$42\mathrm{.}96.$

Required

a$.$ Use the CAPM to compute the required rate of return on common equity capital for Coca$-$Cola $.$

b$.$ Compute the weighted$-$average cost of capital for Coca$-$Cola as of the start of Year $+1.$ At the end of Year $0,$ Coca$-$Cola had $$44,213$ million in outstanding interest$-$bearing debt on the balance sheet and no preferred stock. Assume that the balance sheet value of Coca$-$Cola$$s debt is approximately equal to the market value of the debt. Assume that at the start of Year $+1,$ it will incur interest expense of $2\mathrm{.}0\%$ on debt capital and that its average tax rate will be $24\mathrm{.}0\%.$ Coca$-$Cola also had $$210$ million in equity capital from noncontrolling interests. Assume that this equity capital carries a $15\mathrm{.}0\%$ required rate of return. $($For our forecasts, we assume noncontrolling interests receive dividends equal to the required rate of return each year.$)$

c $.$Use the clean surplus accounting approach to derive the projected dividends for common shareholders for Years $+1$ through $+5$ based on the projected comprehensive income and shareholders$$ equity amounts. $($Throughout this problem, you can ignore dividends to noncontrolling interests.$)$

d$.$ Use the clean surplus accounting approach to project the continuing dividend to common shareholders in Year $+6.$ Assume that the steady$-$state long$-$run growth rate will be $3\%$ in Years $+6$ and beyond.