g 0, d- 012. d in the S ratio. pes the : under- mparison hen com- +6 will be Ome will be 2. Compute P. What dollar hares for risk? or the implied at the earnings ed rate of retum proxies for the rice. (Hint: Begin Walmart shares INTEGRATIVE CASE 14.1 Starbucks Market Multiples price of $69.09 per share.) Valuation of Starbucks' Common Equity Using That makes your In Integrative Case 10.1, we projected financial statements for Starbucks for Years +1 through +5. In this portion of the Starbucks Integrative Case, we use the projected financial statements from Integrative Case 10.1 and apply the techniques in Chapter 14 to compute Starbucks' required rate of return on equity and share value based on the value-to-book valuation model. We also compare our value-to-book ratio estimate to Starbucks' market-to-book ratio at the time of the case to determine an investment recommendation. In addition, we compute the value-earnings and price-earnings ratios and the price differential, and we reverse engineer Starbucks' share price as of the end of 2012. The market equity beta for Starbucks at the end of 2012 is 0.75. Assume that the risk-free interest rate is 3.0% and the market risk premium is 6.0%. Starbucks has 749.3 million shares outstanding at the end of 2012, and the share price was $50.15. REQUIRED Approach Part 1-Computing Starbucks' Value-to-Book Ratio Using the Value-to-Book Valuation bucks. through +5. a. Use the CAPM to compute the required rate of return on common equity capital for Star- the projected residual ROCE (return on common equity) for Starbucks for Years +1 b. Using your projected financial statements from Integrative Case 10.1 for Starbucks, derive c. Assume that the steady-state, long-run growth rate will be 3% in Year +6 and beyond. Project that the Year +5 income statement and balance sheet amounts will grow by 3% in Year +6; then derive the projected residual ROCE for Year +6. d. Using the required rate of return on common equity from Requirement a as a discount rate, compute the sum of the present value of residual ROCE for Starbucks for Years +1 through +5. LO 1 LO 1- LO 14