Assume that it is mid - 2006, when Coca-Cola Company had a share price of $43. The firm paid a dividend of $1.24, and you expect Coca-Cola to raise this dividend by approximately 7% per year in perpetuity.
a) If coca-Cola's equity cost of capital is 8%, what share price would you expect based on your estimate of the dividend growth rate?
b) Given Coca-Cola's share price, what would you conclude about your assessment of Coca-Cola's future dividend growth?