Question 1. Dividend Discount Model Valuation - Using the constant growth dividend discount model formula prepare a valuation estimate of the common stock of Coca-Cola Company.What are your findings?

References:

Using each of these methods, the growth rate of the Coca-Cola based on Company's past (operating) earnings is 1.03%. From analyst's estimate, the growth rate of the Coca-Cola for the last few years is 7.6%. From the firm's fundamentals, the growth rate is 6.7%.

Using all three methods, the growth rate of the Coca-Cola is 7.9%. Which is the closest of all three estimates to the true growth rate of the Coca-Cola? The answers could be different, but the point that we have made so far is: 'Estimate is not always exact and it depends on what method you use. Thus, it is important to know how to estimate growth rates and compare them to the true growth rates. It is also important to know which method is the best one in each situation and use that one.

Method 1: Liquidation Value

Under this method, the total asset value of the firm is adjusted for inflation over the period. It is assumed that at the end of the period, the firm will cease to operate and all the assets will be liquidated. The asset value at the end of the year 2020 is $87,296 million and the inflation rate for the year 2020. The TV in 2021 will be $88,343.55 million.

Method 2: Multiple Approach

Under this approach, the financial multiple of the firm to the expected revenue of the firm. The revenue for the year 2020 is $33,030 million. The market capitalization is $244,520 million and the sales for the year 2020 are $87,296 million. The price-to-sales ratio is 7.40. The average growth rate is -4.60%. The expected revenue for the year 2021 is $31,511.27 million. The TV using this method is $233,277 million.

Method 3: Free cash flow Approach (FCF)

Under this method, the expected FCF calculated using the stable growth rate is used to compute TV. The FCF in the year 2020 is $8,670 million. The expected FCF is divided by the remainder of the cost of capital (CoC) minus stable growth rate (g) and is expressed as TV = FCF*(1+g) (CoC-g). The TV using this method is $93,587.99 million.

3. Most Important Things Learned - What are the most important things you learned from the study of this week's readings and assignments?

The most important things I learned from this week's readings include how to calculate the terminal value of a firm, as well as how to estimate the company's growth rates for earnings, revenues and dividends.

References:

https://learn.umgc.edu/d2l/le/content/676348/viewContent/24282859/View

https://www.marketwatch.com/investing/stock/ko/financials?mod=mw_quote_tab

https://www.gurufocus.com/term/wacc/NYSE:KO/WACC-/Coca-Cola

http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/ddm.pdf