Please help me, I do not understand how to do it. Thanks! Attached is everything my professor gave us. Thanks.

\fFIN 346 (INVESTMENTS) ASSIGNMENT 2 Question 1. A. 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 stock returns 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 about corporate bonds is provided in a separate printout (SBUX Corporate Bonds from Morninsgstar.pdf). Starbucks does not have any short-term interest bearing debt. For the calculation 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 (). There are 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 for illustration. If you decide to use Yahoo Finance (or any other database not listed in the lecture notes, 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)? Question 2: The attached spreadsheet (Q2_FCFF and Q2_FCFE) provides a template for calculating the value of equity (and value per share) of Starbucks using the FCFF and the FCFE approach. We assume that Starbucks goes through a period of high growth, followed by a transitioning period, before finally entering a period of steady state growth. There are two different models. The first assumes that the growth in NOPAT (for FCFF) and Net Income (for FCFE) declines linearly in the transition stage. The second model assumes an exponential decline in the growth rate. Your task is to provide reasonable inputs for the cells highlighted in yellow [discount rates (from Q1A), growth in NOPAT/NI (g) and the reinvestment/retention rate (b)]. The numbers that currently appear in the highlighted cells are based on Assignment 1, these numbers should not be used for guidance in this assignment. A) In order to obtain reasonable estimates for the required inputs, do the following. First, calculate the historical growth in NOPAT, the historical growth in Net Income and the retention/reinvestment ratio (b) during the 2006-2014 period. The reinvestment rate of FIN 346 (INVESTMENTS) NOPAT (at time t) is defined as: = 1 1 = 1 + 1 1 1 (1%) 1 while the retention rate for Net Income (at time t) is defined as = 1 1 , . The data is provided in the spreadsheet SBUX_COMPUSTAT. After you have obtained estimates for these measures in each year, calculate the time-series average and median for each measure. The time-series average is sensitive to extreme outliers, use the median instead. B) Would you issue a buy/sell/hold recommendation on the stock based on the valuations per share that you received in part A)? C) Provide a brief interpretation of the key value drivers (b, g, and ROI/ROE) in each of the three stages of growth (except for ROI/ROE which is explicitly needed only in the steady state period). In order to obtain full marks for part A), you need to provide me with the excel spreadsheet that you used to calculate the inputs. If you are unable to complete part A), you can answer part B) and C) based on the default values provided in the template. DATE Ticker Symbol 20110131 SBUX 20110228 SBUX 20110331 SBUX 20110429 SBUX 20110531 SBUX 20110630 SBUX 20110729 SBUX 20110831 SBUX 20110930 SBUX 20111031 SBUX 20111130 SBUX 20111230 SBUX 20120131 SBUX 20120229 SBUX 20120330 SBUX 20120430 SBUX 20120531 SBUX 20120629 SBUX 20120731 SBUX 20120831 SBUX 20120928 SBUX 20121031 SBUX 20121130 SBUX 20121231 SBUX 20130131 SBUX 20130228 SBUX 20130328 SBUX 20130430 SBUX 20130531 SBUX 20130628 SBUX 20130731 SBUX 20130830 SBUX 20130930 SBUX 20131031 SBUX 20131129 SBUX 20131231 SBUX 20140131 SBUX 20140228 SBUX 20140331 SBUX 20140430 SBUX 20140530 SBUX 20140630 SBUX 20140731 SBUX 20140829 SBUX 20140930 SBUX 20141031 SBUX 20141128 SBUX 20141231 SBUX 20150130 SBUX 20150227 SBUX 20150331 SBUX 20150430 SBUX 20150529 SBUX 20150630 SBUX 20150731 SBUX 20150831 SBUX 20150930 SBUX 20151030 SBUX 20151130 SBUX 20151231 SBUX Company Name STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP Return(SBUX) Market returns Risk-free rate -0.018674 0.019157 0.00281 0.050111 0.038165 0.00296 0.120376 0.003366 0.00282 -0.020298 0.028688 0.00286 0.01989 -0.014935 0.00262 0.07339 -0.018395 0.00248 0.015194 -0.022469 0.00248 -0.033425 -0.057472 0.00191 -0.034438 -0.084873 0.00164 0.135961 0.113982 0.00178 0.030453 -0.006226 0.00167 0.058188 0.003702 0.00164 0.041513 0.054077 0.00163 0.016903 0.041186 0.00163 0.150947 0.023994 0.00180 0.026481 -0.006801 0.00170 -0.040265 -0.065531 0.00149 -0.028603 0.038156 0.00135 -0.150788 0.010266 0.00127 0.099382 0.026265 0.00140 0.022173 0.026539 0.00143 -0.094853 -0.014101 0.00145 0.13464 0.006193 0.00137 0.033931 0.012531 0.00143 0.046429 0.054093 0.00159 -0.018888 0.008331 0.00164 0.038286 0.035274 0.00163 0.068306 0.014945 0.00146 0.041256 0.019066 0.00160 0.037536 -0.015039 0.00191 0.088216 0.052681 0.00214 -0.007841 -0.025714 0.00227 0.091463 0.037477 0.00233 0.053008 0.039851 0.00217 0.008266 0.024947 0.00225 -0.037687 0.026126 0.00240 -0.092741 -0.029957 0.00237 0.001406 0.046173 0.00225 0.034104 0.004469 0.00225 -0.037612 0.00166 0.00225 0.040782 0.020218 0.00212 0.056526 0.027941 0.00216 0.003877 -0.020524 0.00211 0.005021 0.040171 0.00201 -0.030202 -0.025129 0.00210 0.001325 0.021176 0.00191 0.07901 0.02115 0.00193 0.010344 -0.003616 0.00183 0.066788 -0.027152 0.00156 0.07169 0.055948 0.00164 0.012997 -0.010439 0.00169 0.047096 0.008722 0.00161 0.05123 0.010323 0.00182 0.031851 -0.019258 0.00196 0.080481 0.012095 0.00192 -0.052822 -0.059993 0.00180 0.038933 -0.033735 0.00180 0.100809 0.07396 0.00172 -0.015662 0.002442 0.00187 -0.022153 -0.022261 0.00186 Company Name STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP STARBUCKS CORP YEAR Earnings Before Interest and Taxes Net Income Capital Expenditures 2006 2007 2008 2009 2010 2011 2012 2013 2014 800.02 945.94 729.70 796.50 1325.90 1524.60 1786.70 2207.30 2797.60 564.26 672.64 315.50 390.80 945.60 1245.70 1383.80 8.30 2068.10 771.23 1080.35 984.50 445.60 440.70 531.90 856.20 1151.20 1160.90 NOWC Depreciation 16.11 103.18 144.50 -92.47 -59.14 259.76 519.88 -103.25 -108.59 412.63 491.24 604.50 563.30 540.80 550.00 580.60 655.60 748.40 Dividends %TAX 0.00 0.00 0.00 0.00 267.60 419.50 543.70 668.60 827.00 0.44 0.40 0.32 0.25 0.39 0.26 0.31 0.32 0.35 CURRENT STOCK PRICE: Discount rate: Growth stages High growth Transiton Steady state 61.4 0.0500 Duration 3 years 4-15 16>= b 0.500 0.450 0.400 g 0.135 Decay: linear A), Exponential B) 0.020 ROI 0.0500 b g 0.500 0.500 0.500 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.400 0.135 0.135 0.135 0.125 0.116 0.106 0.097 0.087 0.078 0.068 0.058 0.049 0.039 0.030 0.020 0.020 NOPAT(t) 2,016,654 2,288,903 2,597,905 2,948,622 3,318,428 3,702,813 4,096,236 4,492,206 4,883,402 5,261,866 5,619,234 5,947,023 6,236,940 6,481,221 6,672,957 6,806,416 6,942,544 FCFF(t) 1,538,041 1,144,451 1,298,952 1,474,311 1,825,135 2,036,547 2,252,930 2,470,713 2,685,871 2,894,026 3,090,579 3,270,863 3,430,317 3,564,671 3,670,126 3,743,529 4,165,526 A) t= 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 TV PV(FCFF) PV(TV) 138,850,882 1,089,954 1,178,188 1,273,565 1,501,543 1,595,688 1,681,171 1,755,890 1,817,903 1,865,515 1,897,347 1,912,406 1,910,129 1,890,421 1,853,663 1,800,701 66,789,648 +V(OP Asset) +V(Non-OP Assets) =V(FIRM) 91,813,734 1,136,138 92,949,871 V(DEBT) V(EQUITY) Nr of shares (in thousands) Value per share 2,048,300 90,901,571 1,480,000 61.42 B) t= 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 b 0.500 0.500 0.500 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.450 0.400 g 0.135 0.135 0.135 0.117 0.101 0.087 0.076 0.065 0.057 0.049 0.042 0.037 0.032 0.027 0.024 0.020 NOPAT(t) 2,016,654 2,288,903 2,597,905 2,948,622 3,292,947 3,625,569 3,942,349 4,240,306 4,517,518 4,772,982 5,006,455 5,218,287 5,409,276 5,580,527 5,733,349 5,869,160 5,986,544 FCFF(t) 1,538,041 1,144,451 1,298,952 1,474,311 1,811,121 1,994,063 2,168,292 2,332,168 2,484,635 2,625,140 2,753,550 2,870,058 2,975,102 3,069,290 3,153,342 3,228,038 3,591,926 TV PV(FCFF) PV(TV) 119,730,872 1,089,954 1,178,188 1,273,565 1,490,014 1,562,400 1,618,013 1,657,428 1,681,699 1,692,189 1,690,441 1,678,064 1,656,648 1,627,710 1,592,652 1,552,742 57,592,596 +V(OP Asset) +V(Non-OP Assets) =V(FIRM) 80,634,302 1,136,138 81,770,440 V(DEBT) V(EQUITY) Nr of shares (in thousands) Value per share 2,048,300 79,722,140 1,480,000 53.87 CURRENT STOCK PRICE: Discount rate: Growth stages High growth Transiton Steady state 61.4 0.0550 Duration 3 years 4-15 16>= b 0.500 0.432 0.364 g 0.147 Decay: linear A), Exponential B) 0.020 ROE 0.0550 b g 0.500 0.500 0.500 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.364 0.147 0.147 0.147 0.136 0.126 0.115 0.105 0.094 0.084 0.073 0.062 0.052 0.041 0.031 0.020 0.020 NI 2,068,100 2,372,111 2,720,811 3,120,770 3,546,495 3,992,763 4,452,928 4,919,002 5,381,798 5,831,178 6,256,368 6,646,348 6,990,297 7,278,064 7,500,651 7,650,664 7,803,678 FCFE(t) 754,507 1,186,055 1,360,405 1,560,385 2,015,054 2,268,615 2,530,073 2,794,887 3,057,840 3,313,169 3,554,754 3,776,334 3,971,759 4,135,264 4,261,734 4,346,968 4,965,977 A) t= 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 TV PV(FCFE) PV(TV) 141,885,048 1,124,223 1,222,260 1,328,845 1,626,585 1,735,795 1,834,925 1,921,308 1,992,485 2,046,310 2,081,062 2,095,527 2,089,072 2,061,680 2,013,965 1,947,151 63,555,002 V(EQUITY) 90,676,196 Nr of shares (in thousands) Value per share 1,480,000 61.27 B) t= 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 b g 0.500 0.500 0.500 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.432 0.364 0.147 0.147 0.147 0.127 0.110 0.095 0.082 0.071 0.062 0.053 0.046 0.040 0.034 0.030 0.026 0.020 NI 2,068,100 2,372,111 2,720,811 3,120,770 3,517,592 3,904,488 4,275,964 4,627,861 4,957,302 5,262,555 5,542,857 5,798,233 6,029,311 6,237,159 6,423,145 6,588,821 6,720,597 FCFE(t) 754,507 1,186,055 1,360,405 1,560,385 1,998,632 2,218,459 2,429,525 2,629,466 2,816,649 2,990,088 3,149,351 3,294,451 3,425,745 3,543,840 3,649,514 3,743,648 4,276,744 TV PV(FCFE) PV(TV) 122,192,673 1,124,223 1,222,260 1,328,845 1,613,329 1,697,419 1,762,003 1,807,592 1,835,325 1,846,766 1,843,726 1,828,125 1,801,878 1,766,819 1,724,649 1,676,904 54,734,137 V(EQUITY) Nr of shares (in thousands) Value per share 79,614,000 1,480,000 53.79 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. 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