Examine the liabilities on Coca-Cola’s balance sheet. a. How much interest-beari

Question

Examine the liabilities on Coca-Cola’s balance sheet.

a. How much interest-bearing debt does Coca-Cola have outstanding? (You
can assume that other short-term liabilities represent sundry payables, and
other long-term liabilities represent health care and pension obligations.)

b. How much did Coca-Cola obtain in equity capital when it issued stock
originally to the financial markets?

c. Is there any significance to the fact that the retained earnings amount is
much larger than the original paid-in capital?

d.market value of Coca-Cola’s equity is $140 billion. What is the book
value of equity in Coca-Cola? Why is there such a large difference between
the market value of equity and the book value of equity?

In the problems following, use an equity risk premium of 5.5 percent if none is specified Coca-Cola's balance sheet for December 1998 is summarized (in millions of dol- lars) for problems 1 through 9: $ 3,141 4,462 Other short-term liabilities 1,037 8,640 S 1,648Accounts payable Cash and near-cash Marketable securities Accounts receivable Other current assets 1,049 Short-term borrowings 1,666 2,017 6,380Long-term borrowings 1,863Other long-term liabilities1,415 5,486 Current liabilities Current assets Long-term investments 687 Noncurrent liabilities Depreciable fixed assets Nondepreciable fixed assets 2,102 199 2,016 3,060 5,343 8,403 $19,145 Accumulated depreciation Share capital (paid-in) 3,669 Retained earnings Net fixed assets Other assets Total Assets 7,233 $19,145 Shareholder's equity Total Liabilities and Equity

Explanation / Answer

a)

interest-bearing debt = short term borrowings + Long term borrowings

= 4462 + 687 = 5149 million

b)

Equity capital when stock issued = Paid in share capital

   = 3060 million

c)

No relation between retained earnings and paid in capital

retained earnings is accumulate profit fro previous years, which is not distributed as dividend to stockholders.

d)

Book value of equity = paid in capital + retained earnings

   = 3060 + 5343 = 8403 million = 8.403 billion

The huge difference is due to

1) Market always considers future cashflows and value the firm

2) Brand value is not recognized in balance sheet

3) Low debt company,low risk

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