I need an expert to help me figure it out. Please
Coca-Cola Co. (NYSE:KO) said on Thursday (21st February 2019) that it will raise its dividend by 2.6% and set a new program to repurchase up to 150 million shares. The beverage giant’s stock rose 0.8% in morning trade. Coke’s stock has lost 6.7% over the past three months, while the consumer staples ETF has slipped 0.1% and the Dow has gained 5.7%.
There are currently 4.268 billion shares outstanding. The last trading price of Coca-Cola’s stockis $45.10, which is the offer price in the share repurchase. The cost of debt can be estimated based on the yield to maturity of an outstanding bond, which is 2.727%. Assume that debt beta is 0.0171. The risk-free rate is based on the 10-year Treasury bond yield (2.625%).2 The market premium is 5.96%.3 Corporate tax rate is 21%. Coca-Cola’s balance sheet is presented inExhibit 1.
Leveraged recapitalization can have positive or negative consequences for the existing shareholders. As the Chief Executive Officer (CEO) of Coca-Cola, you will be presenting to the board of directors (BOD) of Coca-Cola as to how the company value can be affected by the leveraged recapitalization.
As preparation for tomorrow’s meeting with the BOD, you will have to prepare responses for the following questions:
For Q2 – Q4, assume that the share repurchase is financed entirely by a new debt issue which will mature in 30 years.
Estimate Coca-Cola’s equity beta and WACC pre-leveraged recapitalization. Assume the debt beta is 0.0171 and it does not change pre- and post-leveraged recapitalization.
You can download Coca-Cola past 5 years’ daily prices from, SPDR S&P500 ETF’s past 5 years’ daily prices from, and past 5 years’ daily Treasury Bill rates from . Please refer to page 474 of the textbook for an example of estimating Beta using Excel.
Attach an Excel spreadsheet as a proof of your beta estimation. Show your calculations.
How do Coca-Cola’s equity beta and WACC change post-leveraged recapitalization?Show your calculations.
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