# Valuing Coca Cola Stock Essay

1213 Words Feb 13th, 2016 5 Pages
Valuing of Coca Cola Stock and Analysis
Andrew Burgoyne, James Desimone, Bailey Fowble,
Hewei Huang, Ryan Leist, Maria Sandoval University of South Florida
FIN 4414

Abstract
Taking the role as Jessie Jones, we will analyze whether to recommend the Coca Cola stock to potential clients or current clients that do not have it in their portfolio. By using the Capital Asset Price Model (CAPM), Dividends Discount Model (DDM) and the Price/Earnings (P/E) ratio we will come to a conclusion.

Background
The Coca Cola Company, which is based out of Atlanta, Georgia, is a leader in the global soft drink market. It owns subsidiaries in over 195 countries around the world but has always remained local. According to the most recent
However, using the constant growth dividend model as stated in the case (which simplifies the daunting task of estimating all future cash flows) which states that the current value of Coke’s stock price equals the next period's (expected) dividend divided by the investor’s required rate of return minus the expected dividend growth rate. We were told that an equity analyst who followed Coca Cola reported that he expected dividend growth (g) to average 12% for the next 5 years. The equation below is a representation of the dividend discount model.
P0= D1r-g
P0 is the current price, or value of stock.
D1 is the expected dividends in the next period: which was obtained from exhibit 4, which is the estimate of what the dividends per share will be in 1998. r is the investor’s required rate of return: calculated from CAPM. g is the expected dividend growth rate: which was predicted by an equity analyst who followed Coca Cola.
D1= .62 r = .1941 g = .12
P0 = .62 / (.1941-.12)
P0 = \$8.37
Price/Earnings Multiple
Price/ Earnings Ratio or P/E ratio is a ratio that is widely

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