I'll use the two-stage dividend growth model to compute Coke's intrinsic value, given Coke's cash flow growth rate averages 15% (more realistic than 5%) for the next decade and then drops to a constant 5% forever. I don't see any reason why Coke cannot continue growing cash flow by 15% a year for the next decade, especially given Coke's expansion into foreign markets and Project Infinity.

1998 -- year-end cash flow = $3,662 mil. * 1.15 = $4,211.3 mil.; discounting back 1 year to year-end 1997 present value: $4,211.3 / (1.07)^1 = $3,935.794 mil.

1999 -- year-end cash flow = $4,211.3 mil. * 1.15 = $4,842.995 mil.; discounting back 2 years to year-end 1997 present value: $4,842.995 mil. / (1.07)^2 = $4,230.059 mil.

2000 -- year-end cash flow = $4,842.995 mil. * 1.15 = $5,569.444

mil.; discounting back 3 years to year-end 1997 present value: $5,569.444 mil. / (1.07)^3 = $4,546.326 mil.

You must contine this process up to and including year 2007. At that time:

2007 -- year-end cash flow = $12,882.46 mil. * 1.15 = $14,814.83 mil.; discounting back 10 years to year-end 1997 present value: $14,814.83 mil. / (1.07)^10 = $7,531.11 mil.

Then, you add up all the year-end 1997 present value numbers. This adds up to $55,618.45 mil. So Coke is worth $55,618.45 mil. so far.

In Year 11 (2008), assume Coke's cash flow growth rate drops back down to a conservative 5%. In that case, we can use the growing perpetuity formula again.

2008 -- year-end cash flow = $14,814.83 mil. * 1.05 = $15,555.57 mil. Present value in Year 10 of cash flow growing 5% a year: $15,555.57 mil. / (0.07 - 0.05) = $777,778.7 mil. Then, discount this value back to year-end 1997: $777,778.7 mil. / (1.07)^10 = $395,383.3 mil.

$55,618.45 mil. (from above) + $395,383.3 mil. = $451,001.7

mil. So Coke's intrinsic value at the end of 1997, assuming a 15% cash flow growth rate for the next decade followed by

constant 5% growth, was $451,001.7 mil. Given Coke had 2,470.718 bil. shares outstanding at that time, Coke's intrinsic value per

share at that time was $451.0017 bil. / 2,470.718 bil. shares outstanding, or $182.5387 per share. Coke's 1997 closing price was

$66.6875 per share, and would have represented a margin of safety or discount of ($182.5387 - $66.6875) / $182.5387 = 63.5%.

This is the HIGH side of the possible range of Coke's intrinsic value at the end of 1997. As I said previously, the low side was $81.

At 81 1/8 right now, Coke is not overvalued, but rather it's at the very low end of its possible intrinsic value range.