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

Value of Coca-Cola

With Current

Excess Return

With Cott’s

Excess Return

Return on capital

(after-tax)

20.84% 11.20%

Growth rate during

period (g)

10.42% 5.60%

Cost of capital during

period

7.65% 10.00%

Stable-Growth Period

Growth rate in steady

state

4% 4%

Return on capital in

steady state

7.65% 7.65%

Reinvestment rate in

stable growth

52.28% 52.28%

Costofcapitalinsteady

state

7.65% 10.00%

Value of firm $79,611.25 $17,502.22

Thekeydifferencebetweenthisvaluationandthepreceding
one isthat we changeCoca-Cola’s cost ofcapital to 10%
(whichisCott’scostofcapital)inadditiontochangingthe
returnoncapitalto11.20%.Theneteffectisthattheestimate
of brand name value increases:

Inthelastpartofthisanalysis,weestimatethebrandname
value by attributing the entire excess returns earned by
Coca-Colatoitsbrandnamevalue,holdingcapitalinvested