Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

WenextvalueCoca-Cola’sbrandnameusingthereturnon
capital approach, changing Coke’s return on capital of
20.84%toCott’sreturnoncapitalof11.20%andholdingthe
capitalinvested constantatCoca-Cola’s capitalof $16,406
millionand the cost ofcapital at7.65%. The brand name
valuation is provided in the following table:

Value of Coca-Cola

With Current

ROC

WithCott’s

ROC

Capitalinvested (bookvaluesof

debt and equity)

$16,406

million

$16,406

million

High-Growth Period

Length of high-growth period (n) 10 years 10 years

Reinvestment rate, as % of

EBIT(1 −t)

50% 50%

Return on capital (after-tax) 20.84% 11.20%

Growth rate during period (g) 10.4194% 5.60%

Cost of capital during period 7.65% 7.65%

Stable-Growth Period

Growth rate in steady state 4.00% 4.00%

Return on capital in steady state 7.65% 7.65%

Reinvestment rate in stable

growth

52.28% 52.28%

Cost of capital in steady state 7.65% 7.65%

Value of firm $79,611.25 $28,883.10

Operating income with Cott’s ROC = .112 × 16,406