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Coca Cola (KO) has the following free cash flows
Coca Cola (KO) has the following free cash flows. Calculate the time value of money growth rate and use for your valuation. They have debt of $52,867 million and there are 4.297.4M shares of stock outstanding. If the discount rate is 5%, what is the intrinsic value of one share of stock? Use the average FCF as your FCFO. WMT FCF (in $millions) 2016 6,961.9 2017 1.689.5 2018 12.447.9 2019 7 242.6
Expert Solution
FCF year 2016 = 6961.9
FCF year 2019 = 7242.6
years gap (n) =3
time value of money growth rate formula = ((FCF year 2019/FCF year 2016)^(1/n))-1
((7242.6/6961.9)^(1/3))-1
=0.01326312937
So growth rate (g)=0.01326312937
discount rate (k)=5% or 0.05
Average cash flows = total of all year cash flows/number of years
=(6961.9+1689.5+12447.9+7242.6)/4
=7085.475
So FCF 0=7085.475
FCF1= FCF0*(1+g)
=7085.475*(1+0.01326312937)
=7179.450572
Value of firm as per Free cash flow constant growth model = FCF1/(k-g)
=7179.450572/(0.05-0.01326312937)
=195429.0186
Value of equity = value of firm - value of debt
=195429.0186 - 52867
=142562.0186
Value per share = value of equity/number of shares
=142562.0186/4297.4
=33.17401652
So intrinsic value of stock is $33.17
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