Calculate the cost of capital (WACC) for Starbucks. The Treasury bond rate (10-year) is 1.87 %per year. Estimates for the market risk premium are provided in the lecture notes (W3, pp. 21).The number of shares outstanding is 1,480,000,000. The current stock price $61.4. Historical stockreturns for Starbucks, for the market and the risk-free rate is provided in the sheet SBUX_CRSP.All returns are expressed in decimal form, rather than as percentages. The information aboutcorporate bonds is provided in a separate printout (SBUX Corporate Bonds fromMorninsgstar.pdf). Starbucks does not have any short-term interest bearing debt. For thecalculation of WACC, you can assume a tax rate of 34.5 %.In order to get full marks, you must show all steps in the calculation of the components of WACC(rE, wE, rD and wD).Hint: In order to obtain the cost of equity (rE), you need to obtain an estimate of the beta (?). Thereare two possibilities. You can either estimate the beta as we discussed in class (Week 3, p.27-31),or you can get the beta from an existing database (see p.31 of Week 3). If you choose the later,you must document where you obtained the beta estimate from, and provide a screenshot forillustration. If you decide to use Yahoo Finance (or any other database not listed in the lecturenotes, W3 p.31), you will not receive full marks since these betas are not always reliable.B.Suppose that the target capital structure for Starbucks in the long run is 80 % equity, 20 % debt.How would your answer change in part A)?

2/7/2016 SBUX Starbucks Corp debt, bond, rates, credit Morningstar Register Welcome! Membership Home Portfolio Stocks Bonds Funds ETFs CEFs Markets Tools Subscribe Log In Real Life Finance Company Site Discuss Starbucks Corp SBUX Add to Portfolio Quote Chart Get Email Alerts Stock Analysis Print This Page Performance PDF Report Key Ratios Financials Data Question Valuation http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=SBUX&Country=USA Insiders Ownership Filings Bonds 1/3 2/7/2016 SBUX Starbucks Corp debt, bond, rates, credit Morningstar Morningstar Credit Rating * Amt Outstanding Issuer Type Issuer Domicile Debt/Assets Sector A $2.9 Bil Corporate United States 18.14 % Consumer Cyclical Capital Structure Most Recent (Dec 2015) Historical Sep 2015 Dec 2014 Dec 2012 Type % Amount Type % Amount Debt 28.2 2.3 Bil Debt 28.7 2.3 Bil Preferred 71.8 Equity 6.0 Bil Preferred 71.3 Equity 5.8 Bil Yield to Maturity Debt Preferred Convertible Name Circle size determined by issue amount Amount $(Mil) Maturity Date Credit Quality Price Coupon % Coupon Type (Fixed/Floating) Callable Rule 144A Yield to Maturity % Starbucks 3.85% 10/01/2023 750.0 107.8 3.850 Fixed No No 2.71 Starbucks 6.25% 08/15/2017 550.0 110.3 6.250 Fixed No No 1.32 Starbucks 2.7% 06/15/2022 500.0 101.9 2.700 Fixed No No 2.38 Starbucks 2.1% 02/04/2021 500.0 100.9 2.100 Fixed No No 1.92 Starbucks 0.875% 12/05/2016 400.0 100.0 0.875 Fixed No No 0.87 Starbucks 2% 12/05/2018 350.0 101.5 2.000 Fixed No No 1.46 Starbucks 4.3% 06/15/2045 350.0 107.1 4.300 Fixed No No 3.89 Credit Quality Debt & Coverage Ratios Firm Ind Avg Debt/Assets 0.18 0.43 Debt/Equity 0.39 1.82 Current Assets/Current Liability 1.07 Morningstar Core Bond Index Debt Preferred Convertible 1.15 EBITDA/Interest 73.63 0.46 2.18 Cashflow Ops/Total Debt 1.69 Debt/EBITDA Rel to Industry 0.35 Avg + *Content was produced by the Morningstar Credit Analyst Team. http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=SBUX&Country=USA 2/3 2/7/2016 SBUX Starbucks Corp debt, bond, rates, credit Morningstar *Content was produced by the Morningstar Credit Analyst Team. We value your feedback. Let us know what you think. Site Directory Corrections Help Site Map Advertising Opportunities Our Products Licensing Opportunities Glossary RSS Mobile Portfolio Affiliate Careers Company News International Sites: Australia Canada China France Germany Hong Kong Italy The Netherlands Norway Spain U.K. Switzerland India Finland Stocks by: Name | Ticker | Star Rating | Market Cap | Stock Type | Sector | Industry Mutual Funds by: Star Rating | Investment Style | Total Assets | Category | Top Holdings | Top Sectors | Symbol / Ticker | Name ETFs by: Star Rating | Category | Total Assets | Symbol / Ticker | Name Articles by: Title | Date | Author | Collection | Interest | Popularity Investment Categories by: Topic | Sector | Key Indicators | User Interest | Market Cap | Industry Premium Stocks by: Name | Ticker | Star Rating | Market Cap | Stock Type | Sector | Industry Premium Mutual Funds by: Star Rating | Investment Style | Total Assets | Category | Top Holdings | Top Sectors | Symbol / Ticker | Name Premium ETFs by: Star Rating | Category | Total Assets | Symbol / Ticker | Name Popular Articles by: Title | Date | Author | Collection | Interest | Popularity Popular Investment Categories by: Topic | Sector | Key Indicators | User Interest | Market Cap | Industry Independent. Insightful. Trusted. Morningstar provides stock market analysis equity, mutual fund, and ETF research, ratings, and picks portfolio tools and option, hedge fund, IRA, 401k, and 529 plan research. Our reliable data and analysis can help both experienced enthusiasts and newcomers. Copyright 2016 Morningstar, Inc. All rights reserved. Please read our Terms of Use and Privacy Policy. Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are realtime. http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=SBUX&Country=USA 3/3