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