The Warren Buffett Way: The World’s Greatest Investor

126

Table 8.1

The Coca-Cola Company Discounted Owner Earnings Using a T

wo-Stage “Dividend” Discount Model (first stage is ten years)

Ye a r

123456789

10

Prior year cash flow

$828

$0,952

$ 1,095

$1,259

$ 1,448

$1,665

$1,915

$2,202

$2,532

$2,912

Growth rate (add)

15%

15%

15%

15%

15%

15%

15%

15%

15%

15%

Cash flow

$952

$1,095

$ 1,259

$1,448

$ 1,665

$1,915

$2,202

$2,532

$2,912

$3,349

Discount factor (multiply)

0.9174

0.8417

0.7722

0.7084

0.6499

0.5963

0.5470

0.5019

0.4604

0.4224

Discounted value per annum

$873

$ 922

$

972

$1,026

$ 1,082

$1,142

$1,204

$1,271

$1,341

$1,415

Sum of present value of cash flows

$11,248

Residual Value

Cash flow in year 10

$ 3,349

Growth rate (

g) (add)

5%

Cash flow in year 11

$ 3,516

Capitalization rate (

k-g

)4

%

Value at end of year 10

$87,900

Discount factor at end of year 10 (multiply)

0.4224

Present Value of Residual

37,129

Market Value of Company

$48,377

Notes:

Assumed first-stage growth rate

=

15.0%; assumed second-stage growth rate

=

5.0%;

k=

discount rate

=

9.0%.

Dollar amounts are in millions.