Use the Standard & Poor's Market Insight Web site (www.mhhe.com/ edumarketinsight) for this problem. Assume Starbucks Corporation is reviewing the cost of equity and the WACC it uses to evaluate new in- vestments. Management collected the following information as of November 30, 2007: Yield to maturity on debt Coupon interest rate on debt Tax rate Long-term government bond rate Historical excess return on common stocks 5.72% 6.25% 35% 4.72% 6.3%

a. Use Starbucks' November 2007 beta (B) to calculate the company's cost of equity capital. (To find beta go to Excel Analytics, Valuation Data, Profitability.)

b. As of November 2007, calculate Starbucks' WACC. (Hint: For pur- poses of this exercise, use Total Liabilities as the company's book value of debt. You can find Total Liabilities on Starbucks' Annual Bal- ance Sheet under Excel Analytics. The common shares outstanding are there as well. For the closing market price check Profitability.)

AppendixLO1