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