2.1. Estimate a second stage (also called the stable stage) growth rate in dividends, g2, for use in the Two-Stage
he Two-Stage DDM. Your estimate for g2 is the growth rate that you expect will continue “forever” in the second stage. Your estimate for g2 should not be much greater than the expected future growth in the overall economy (expected growth in GDP). Why? LIST your estimate for g2 and provide a short paragraph that EXPLAINS your reasoning AND the source of your estimate for long-term growth in GDP. Finally, estimate and LIST a price per share for KO using your estimates for g1, N, Re, g2 and KO’s current annual dividend (most recent quarterly dividend x 4) as D(0) in the Two-Stage DDM (submit your spreadsheet).
2. Calculate KO’s FCFF for EACH of the past five (5) years using the financial statement data found in KO’s annual reports and using the FCFFM.xls template. The template will calculate the annual FCFF value for you, but you MUST insert the correct input values for Depreciation & Amortization, Capital Investment, Capital Sales, etc.
3. Assume that the average annual FCFF from Q5 is good estimate of KO’s FCFF(0) for use in the FCFM. LIST your estimate for FCFF(0) then estimate and LIST a price per share for KO using your estimates for g1, N, WACC, g2 and FCFF(0) in the Two-Stage FCFFM (submit your spreadsheet).Use the same estimate second stage or stable stage growth, g2, in the FCFFM that you selected for the DDM.
4. Apply Relative Valuation methods to Coca-Cola (KO) using the following three (3) popular relative valuation ratios - Price/Earnings, Price/Book, Price/Sales (call these three ratios Price/”X” ratios). Select at least five (5) comparable firms that are in the same industry as KO and use the average P/X ratio for the group of comparable firms in your valuation analysis. The P/X ratios for the template can be found by using the screener on the Finviz.comwebsite. Use the Relative Valuation (RV) Excel spreadsheet tab found in the Two Stage_DDM_FCFE_FCFF_RV.xlsx file.
4.In 1899, Charles M. “Mile a Minute” Murphy set a record for speed on a bicycle by pedaling for a
mile at an average of 62.3 mi/h (27.8 m/s) on a track of planks set over railroad ties in the draft of a Long Island Railroad train. In 1985, a record was set for this type of “motor pacing” by Olympic cyclist John Howard who pedaled at 152.2 mi/h (68.04 m/s) in the wake of a race car at Bonneville Salt Flats. The race car had a modified tail assembly designed to reduce the air drag on the cyclist. Assume that the mass of bicycle plus rider is 72.3 kg in each case.
7.Mitch and Bill are both age 75. When Mitch was 25 years old, he began depositing $1000 per year into
a savings account. He made deposits for the next 10 years, at which point he was forced to stop making deposits. However, he left his money in the account, where it continued to earn interest for the next 40 years. Bill didn't start saving until he was 45 years old, but for the next 30 years he made annual deposits of $1000. Assume that both accounts earned an average annual return of 5% compounded once a year.
a) How much money does Mitch have in his account at age 75
b)How much money does Bill have in his account at age 75
8.1. Paul wonders what it would be like to own a house of his own within five years. He now rents
o-bedroom apartment with a friend. He pays half the $740 monthly rent. A two-bedroom bungalow on his street is for sale with an asking price of $107 900 and has annual property taxes of approximately $2800.
a) a. As a first time homebuyer, Paul would need a 5% downpayment. Calculate this amount.
b) How much would Paul need to save each month to have the down payment saved is 5 years? Is this amount and the time period reasonable? Explain.
c. Use a TVM Solver to determine the monthly mortgage payment for this house, less the down payment. Assume the interest rate is 6% per year and the mortgage is amortized over 25 years.
d) Calculate the monthly payment to the bank for the mortgage plus the monthly portion of the property taxes.
e) e. Bills from the current owners show that electricity averages $180 every two months, natural gas averages $115 per month, and water averages $260 every four months. Calculate the average monthly utility expenses for the house.