Value of Coca-Cola
With Current
Margin
With Cott’s
Margin
Return on capital
(after-tax)
20.84% 7.06%
Growthrateduring period
(g)
10.42% 3.53%
Cost of capital during
period
7.65% 7.65%
Stable-Growth Period
Growth rate in steady state 4.00% 4.00%
Returnoncapitalinsteady
state
7.65% 7.65%
Reinvestmentrateinstable
growth
52.28% 52.28%
Cost of capital in steady
state
7.65% 7.65%
Value of firm
$79,611.25
million
$15,371.24
million
Return on capital = Operating margin × Sales/capital
Notethattheloweroperatingmarginsaffectcurrentoperating
income(.0528×21,962)andalsotranslateintolowerreturns
oncapitalandlower growthrates.ThevalueofCoca-Cola
withitscurrentmarginsis$79,611million,whereasitisonly
$15,371 million with generic margins (Cott).