An EPS/EBIT analysis is one of the most widely used techniques for determining the extent that debt or stock should be used to finance strategies to be implemented. This exercise can give you practice performing EPS/EBIT analysis.

Amount Coca-Cola needs: $5,000 million to build four new manufacturing plants outside the United States

• Interest rate: 5%
• Tax rate: 21%
• Stock price: $45.54 as of January 2, 2018
• Number of shares outstanding: 4,255 million
• EBIT: Pessimistic: $7,000 million, Realistic: $9,000 million, Optimistic: $11,000 million

1. Prepare an EPS/EBIT analysis for Coca-Cola. Determine whether the company should use all debt, all stock, or a 50-50 combination of debt and stock to finance this market-development strategy.
2. Develop an EPS/EBIT chart after completing the EPS/EBIT table.
3. Next, give a three-sentence recommendation for Coca-Cola’s CFO.

This exercise is designed to give you experience preparing projected financial statements. This analysis is a strategic finance and accounting issue because it allows managers to anticipate and evaluate the expected results of various strategy-implementation approaches.

1. Step 1Work with a classmate. Develop a projected income statement and balance sheet for Coca-Cola. Use the template if possible. Assume that Coca-Cola needs to raise $1 billion to increase its market share, and plans to obtain 50 percent financing from a bank and 50 percent financing from a stock issuance. Make other assumptions as needed, and state them clearly in written form.
2. Step 2Bring your projected statements to class and discuss any problems or questions you encountered.
3. Step 3Compare your projected statements to the statements of other students. What major differences exist between your analysis and the work of other students?

It is simply good business to continually know the cash value (corporate valuation) of your company. This exercise gives you practice in determining the total worth of a company using several methods. To perform this analysis, use Coca-Cola’s financial statements as given in the Cohesion Case.

1. Step 1Calculate the financial worth of Coca-Cola based on four approaches: (1) the net worth method, (2) the net income method, (3) the price-earnings ratio method, and (4) the outstanding shares method.
2. Step 2Get an average of the four methods. In a dollar amount, how much is Coca-Cola worth?
3. Step 3Compare your analyses and conclusions with those of other students.

Financial ratios are vastly more than just an exercise for students to perform. If any firm’s financial ratios get out of line with industry average or decline over time, investors can withdraw support literally overnight. Projected financial ratios are an excellent means for anticipating financial results so as to avoid overnight calamities. The template will generate projected financial ratios after you convert your firm’s financial statements to the template format and then develop projected financial statements based on recommended strategies.

1. Step 1Review the results of your EXERCISE 8B
2. Step 2Compute Coca-Cola’s projected current ratio, debt-to-equity ratio, and return-on-investment ratio. How do your projected ratios compare to prior year ratios? Why is it important to make this comparison?