Refer to the Darden Restaurant's Value Line page A. What is DRI's after-tax cost of LT (long-term) debt? Use the 2020 Tax Rate, the LT Interest as of 5/30/21, and the LT Debt balance as of 5/30/21. B. Using the Capital Asset Pricing Model (CAPM), what is DRI's cost of equity? Assume a 5.00% market risk premium" and a risk-free rate of 2.15% as well as the Value Line Beta. C. Using the Dividend Growth Model, calculate DRI's cost of equity. Use Value Line's estimate of future "dividend growth (Estid19-21 to 24-26) as the long-term growth rate and the projected dividend yield (Dixd Yld) which is estimated as the projected year-end dividend yield. D. What is DRI's weighted after-tax cost of capital using the capital structure as presented by the book values of long-term debt and equity as of year-end 2020 (i.e., book weights). Use the CAPM cost of equity and the cost of debt calculated in Part A. E. What is DRI's weighted after-tax cost of capital using the capital structure as presented by the market values of long-term debt and equity? Use the CAPM cost of equity and the cost of debt calculated in Part A, assume that the market value of the long-term debt is equal to the book value as of 12/31/20, and use the number of shares outstanding as of that date and the Recent Price for the market value of the equity. F. What is DRI's weighted after-tax cost of capital using the book capital structure as projected by Value Line for the future (2024-2026)? Use the CAPM cost of equity and the cost of debt calculated in Part A. 1 G. Which part most correctly estimates DRI's cost of capital? Part (D, E, or F)? H. Without recalculating your answers to part D, E, and F, how would your answers have changed (higher or lower) if you used the Dividend Growth Rate Model for the cost of equity? DARDEN RESTAURANTS NYSE-DRI PERCENT 138.23 kO 17.8 (Wedin : 1922) PE RATO 0.93 3.2% 356 Thu TILL Minull PE Trailing32.1 RELATIVE DIV'D VALUE YLD LINE TIMELINESS 3 Raised 4/16/21 High: 50.8 53.8 57.9 55.3 59.6 75.6 79.4 98.4 124.0 128.4 126.0 150.7 Low: 33.7 Target Price Range 40.7 43.8 44.1 43.6 53.4 55.8 71.0 82.4 97.9 26.2 110.9 SAFETY 3 Lowered 3/12/04 LEGENDS 2024 2025 2026 -14.0 x "Cash Flow" p sh TECHNICAL 2 Raised 8/20/21 .... Relative Price Strength -320 Options: Yes BETA 1.50 (1.00 = Market) Shaded area indicates recession -200 18-Month Target Price Range -160 Low-High Midpoint (% to Mid) -120 -100 $49-$217 $133 (-5%) -80 2024-26 PROJECTIONS -60 Ann'l Total Price Gain Retum -40 High 255 (+85%) 19% Low 170 1+25%) 8% Institutional Decisions % TOT. RETURN 7/21 THIS VL ARITH. 302020 4Q2020 192021 Percent 45 STOCK INDEX to Buy 267 290 368 shares 30 L 1 yr. 96.0 55.5 to Sell 330 332 296 traded 15 LL 3 yr. 44.1 48.6 Hid's(000) 116737 117144 114121 5 yr. 165.5 95.5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 VALUE LINE PUB. LLC 24-26 34.19 38.92 39.37 47.16 51.81 49.20 55.72 62.01 65.63 47.51 53.39 54.94 57.18 65.43 69.13 60.10 55.03 73.25 Sales per sh 83.05 3.26 3.81 4.08 4.62 4.77 4.95 5.91 6.40 6.20 3.69 5.23 5.92 6.20 7.44 8.66 5.73 7.03 10.70 "Cash Flow" per sh 14.05 1.78 2.16 2.53 2.78 2.72 2.91 3.41 3.58 3.14 1.38 2.64 3.53 4.02 4.81 5.82 3.16 4.31 7.75 Earnings per sh AB 10.60 .08 40 46 .72 .80 1.00 1.28 1.72 2.00 2.20 2.20 2.10 2.24 2.52 3.00 2.64 1.55 4.40 Divids Decl'd per sh Cm 5.00 2.13 2.30 2.44 3.05 3.84 2.99 4.07 4.96 5.26 3.14 2.34 1.81 2.34 3.21 3.67 3.54 1.95 3.30 Cap'l Spending per sh 2.80 8.25 8.37 7.74 10.03 11.53 13.10 14.38 14.28 15.81 16.30 18.42 15.47 16.76 17.77 19.44 17.95 21.51 25.50 Book Value per sh 37.50 154.39 147.00 141.40 140.50 139.30 144.60 134.60 129.00 130.30 132.30 126.70 126.20 125.40 123.50 123.10 129.90 130.76 129.00 Common Shs Outst'g D 124.00 14.4 16.6 15.8 13.4 10.6 12.6 13.4 13.5 16.0 36.5 21.2 18.5 17.8 18.4 18.9 33.1 25.6 Avg Ann'l P/E Ratio .77 .90 .84 .81 71 .80 .84 .86 .90 1.92 1.07 .97 .90 .99 1.01 1.70 1.31 Relative P/E Ratio 1.10 .3% 1.1% 1.2% 1.9% 2.8% 2.7% 2.8% 3.6% 4.0% 4.4% 3.9% 3.2% 3.1% 2.9% 2.7% 2.5% 1.4% Avg Ann'l Div'd Yield 2.4% Inhill 20.0 CAPITAL STRUCTURE as of 5/30/21 Total Debt $929.8 mill. Due in 5 Yrs $270 mill. LT Debt $929.8 mill. LT Interest $55 mill. 5.0% 63% (Total interest coverage: 10.8x) (25% of Cap') Leases, Uncapitalized Annual rentals $384.2 mill. Pension Assets-5/21 $4.8 mill. Pension Obligation $4.8 mill. Pld Stock None Common Stock 130,762,723 shs 5 MARKET CAP: $18.1 billion (Large Cap) CURRENT POSITION 2019 2020 5/30/21 ($MILL.) Cash Assets 457.3 763.3 1214.7 Receivables 40.2 49.8 37.9 Inventory (avg. cost) 207.3 206.3 190.8 Other 187.8 81.4 427.7 Current Assets 892.6 1101.4 1871.1 Accts Payable 332.6 249.4 304.5 Debt Due Other 1141.5 1273.4 1543.8 Current Liab. 1474.1 1792.8 1848.3 ANNUAL RATES Past Past Est'd 19-21 of change (per sh) 10 Yrs. 5 Yrs. 5 to "24-26 Sales 1.5% 3.5% 6.0% "Cash Flow" 3.0% 7.5% 14.5% Earnings 4.0% 12.0% 19.0% Dividends 9.0% 2.0% 16.0% Book Value 4.0% 3.5% 9 7500.2 7998.7 8551.9 6285.6 6764.0 6933.5 7170.2 8080.1 8510.4 7806.9 7196.1 9450 Sales ($mill) A 10300 14.2% 13.6% 12.2% 10.0% 12.1% 13.9% 13.6% 13.6% 14.0% 10.2% 14.7% 17.2% Operating Margin 20.0% 316.8 349.1 394.8 304.4 319.3 290.2 272.9 313.1 336.7 355.9 350.9 375 Depreciation (Smill) 425 478.7 476.5 412.6 183.2 342.9 456.6 504.5 606.2 729.6 388.9 568.5 1005 Net Profit ($mill) 1315 26.1% 25.3% 21.0% 14.6% 24.4% 24.8% 16.7% 8.4% 8.4% 8.9% 14.0% Income Tax Rate 15.0% 6.4% 6.0% 4.8% 2.9% 5.1% 6.6% 7.0% 7.5% 8.6% 7.9% 10.7% Net Profit Margin 12.8% d623.0 01017 0651.5 357.9 d140.3 d366.8 0489.4 0830.9 0581.5 d691.4 22.8 100 Working Cap'l ($mill) 900 1463.3 1508.1 2548.7 2533.4 1452.3 440.0 936.6 926.5 927.7 928.8 929.8 900 Long-Term Debt ($mill) 800 1936.2 1842.0 2059.5 2156.9 2333.5 1952.0 2101.7 2194.8 2392.6 2331.2 2813.1 3300 Shr. Equity ($mill) 4650 15.3% 15.7% 10.3% 5.3% 10.4% 20.5% 17.3% 20.4% 22.7% 12.8% 16.0% 24.0% Retum on Total Cap'l 24.5% 24.7% 25.9% 20.0% 8.5% 14.7% 23.4% 24.0% 27.6% 30.5% 16.7% 20.2% 30.5% Retum on Shr. Equity 28.5% 15.7% 13.7% 7.5% NMF 2.7% 9.7% 10.7% 13.3% 15.0% 2.9% 13.0% 13.5% Retained to Com Eq 15.0% 37% 47% NMF 81% 59% 55% 52% 51% 83% 36% 56% All Div'ds to Net Prof 47% BUSINESS: Darden Restaurants is the world's largest casual units). Spun-off Red Lobster, 5/15; Four Corners Property Trust dining operator. At 5/30/21, had 1,834 units in the U.S. and Cana- 11/15. Depr. rate: 4.6%. Has 177,000 employees. Officers/directors da. Licenses to 78 franchisees overseas. Chains include: The Olive own less than 1.0% of common stock. Vanguard Group, 10.6%; Garden (875 units); LongHom (533 units); Cheddar's Scratch Kitch- Capital World Inv. 9.0%. (8/21 Proxy). CEO: Eugene Lee. In- en (170 units); Capital Grille (63 units); Yard House (81 units); corporated: Florida. Address: 1000 Darden Center Drive, Orlando, Bahama Breeze (42 units); Seasons 52 (44 units); Eddie V's (26 FL 32837. Telephone: 407-245-4000. Internet: www.darden.com. We have increased our fiscal 2022 menus to remove low-preference and low- (years end on last Sunday in May) satisfaction items. This has helped the share-net estimate for Darden company to serve its most popular dishes Restaurants by $1.65, to $7.75. The to more guests, while also saving the chefs company finished fiscal 2021 in strong time and reducing food waste. Moreover, fashion, reporting earnings of $2.03 a Darden also invested in technology to share, $0.16 better than our estimate, and streamline its to-go capabilities, thus we 14.0% Refer to the Darden Restaurant's Value Line page A. What is DRI's after-tax cost of LT (long-term) debt? Use the 2020 Tax Rate, the LT Interest as of 5/30/21, and the LT Debt balance as of 5/30/21. B. Using the Capital Asset Pricing Model (CAPM), what is DRI's cost of equity? Assume a 5.00% market risk premium" and a risk-free rate of 2.15% as well as the Value Line Beta. C. Using the Dividend Growth Model, calculate DRI's cost of equity. Use Value Line's estimate of future "dividend growth (Estid19-21 to 24-26) as the long-term growth rate and the projected dividend yield (Dixd Yld) which is estimated as the projected year-end dividend yield. D. What is DRI's weighted after-tax cost of capital using the capital structure as presented by the book values of long-term debt and equity as of year-end 2020 (i.e., book weights). Use the CAPM cost of equity and the cost of debt calculated in Part A. E. What is DRI's weighted after-tax cost of capital using the capital structure as presented by the market values of long-term debt and equity? Use the CAPM cost of equity and the cost of debt calculated in Part A, assume that the market value of the long-term debt is equal to the book value as of 12/31/20, and use the number of shares outstanding as of that date and the Recent Price for the market value of the equity. F. What is DRI's weighted after-tax cost of capital using the book capital structure as projected by Value Line for the future (2024-2026)? Use the CAPM cost of equity and the cost of debt calculated in Part A. 1 G. Which part most correctly estimates DRI's cost of capital? Part (D, E, or F)? H. Without recalculating your answers to part D, E, and F, how would your answers have changed (higher or lower) if you used the Dividend Growth Rate Model for the cost of equity? DARDEN RESTAURANTS NYSE-DRI PERCENT 138.23 kO 17.8 (Wedin : 1922) PE RATO 0.93 3.2% 356 Thu TILL Minull PE Trailing32.1 RELATIVE DIV'D VALUE YLD LINE TIMELINESS 3 Raised 4/16/21 High: 50.8 53.8 57.9 55.3 59.6 75.6 79.4 98.4 124.0 128.4 126.0 150.7 Low: 33.7 Target Price Range 40.7 43.8 44.1 43.6 53.4 55.8 71.0 82.4 97.9 26.2 110.9 SAFETY 3 Lowered 3/12/04 LEGENDS 2024 2025 2026 -14.0 x "Cash Flow" p sh TECHNICAL 2 Raised 8/20/21 .... Relative Price Strength -320 Options: Yes BETA 1.50 (1.00 = Market) Shaded area indicates recession -200 18-Month Target Price Range -160 Low-High Midpoint (% to Mid) -120 -100 $49-$217 $133 (-5%) -80 2024-26 PROJECTIONS -60 Ann'l Total Price Gain Retum -40 High 255 (+85%) 19% Low 170 1+25%) 8% Institutional Decisions % TOT. RETURN 7/21 THIS VL ARITH. 302020 4Q2020 192021 Percent 45 STOCK INDEX to Buy 267 290 368 shares 30 L 1 yr. 96.0 55.5 to Sell 330 332 296 traded 15 LL 3 yr. 44.1 48.6 Hid's(000) 116737 117144 114121 5 yr. 165.5 95.5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 VALUE LINE PUB. LLC 24-26 34.19 38.92 39.37 47.16 51.81 49.20 55.72 62.01 65.63 47.51 53.39 54.94 57.18 65.43 69.13 60.10 55.03 73.25 Sales per sh 83.05 3.26 3.81 4.08 4.62 4.77 4.95 5.91 6.40 6.20 3.69 5.23 5.92 6.20 7.44 8.66 5.73 7.03 10.70 "Cash Flow" per sh 14.05 1.78 2.16 2.53 2.78 2.72 2.91 3.41 3.58 3.14 1.38 2.64 3.53 4.02 4.81 5.82 3.16 4.31 7.75 Earnings per sh AB 10.60 .08 40 46 .72 .80 1.00 1.28 1.72 2.00 2.20 2.20 2.10 2.24 2.52 3.00 2.64 1.55 4.40 Divids Decl'd per sh Cm 5.00 2.13 2.30 2.44 3.05 3.84 2.99 4.07 4.96 5.26 3.14 2.34 1.81 2.34 3.21 3.67 3.54 1.95 3.30 Cap'l Spending per sh 2.80 8.25 8.37 7.74 10.03 11.53 13.10 14.38 14.28 15.81 16.30 18.42 15.47 16.76 17.77 19.44 17.95 21.51 25.50 Book Value per sh 37.50 154.39 147.00 141.40 140.50 139.30 144.60 134.60 129.00 130.30 132.30 126.70 126.20 125.40 123.50 123.10 129.90 130.76 129.00 Common Shs Outst'g D 124.00 14.4 16.6 15.8 13.4 10.6 12.6 13.4 13.5 16.0 36.5 21.2 18.5 17.8 18.4 18.9 33.1 25.6 Avg Ann'l P/E Ratio .77 .90 .84 .81 71 .80 .84 .86 .90 1.92 1.07 .97 .90 .99 1.01 1.70 1.31 Relative P/E Ratio 1.10 .3% 1.1% 1.2% 1.9% 2.8% 2.7% 2.8% 3.6% 4.0% 4.4% 3.9% 3.2% 3.1% 2.9% 2.7% 2.5% 1.4% Avg Ann'l Div'd Yield 2.4% Inhill 20.0 CAPITAL STRUCTURE as of 5/30/21 Total Debt $929.8 mill. Due in 5 Yrs $270 mill. LT Debt $929.8 mill. LT Interest $55 mill. 5.0% 63% (Total interest coverage: 10.8x) (25% of Cap') Leases, Uncapitalized Annual rentals $384.2 mill. Pension Assets-5/21 $4.8 mill. Pension Obligation $4.8 mill. Pld Stock None Common Stock 130,762,723 shs 5 MARKET CAP: $18.1 billion (Large Cap) CURRENT POSITION 2019 2020 5/30/21 ($MILL.) Cash Assets 457.3 763.3 1214.7 Receivables 40.2 49.8 37.9 Inventory (avg. cost) 207.3 206.3 190.8 Other 187.8 81.4 427.7 Current Assets 892.6 1101.4 1871.1 Accts Payable 332.6 249.4 304.5 Debt Due Other 1141.5 1273.4 1543.8 Current Liab. 1474.1 1792.8 1848.3 ANNUAL RATES Past Past Est'd 19-21 of change (per sh) 10 Yrs. 5 Yrs. 5 to "24-26 Sales 1.5% 3.5% 6.0% "Cash Flow" 3.0% 7.5% 14.5% Earnings 4.0% 12.0% 19.0% Dividends 9.0% 2.0% 16.0% Book Value 4.0% 3.5% 9 7500.2 7998.7 8551.9 6285.6 6764.0 6933.5 7170.2 8080.1 8510.4 7806.9 7196.1 9450 Sales ($mill) A 10300 14.2% 13.6% 12.2% 10.0% 12.1% 13.9% 13.6% 13.6% 14.0% 10.2% 14.7% 17.2% Operating Margin 20.0% 316.8 349.1 394.8 304.4 319.3 290.2 272.9 313.1 336.7 355.9 350.9 375 Depreciation (Smill) 425 478.7 476.5 412.6 183.2 342.9 456.6 504.5 606.2 729.6 388.9 568.5 1005 Net Profit ($mill) 1315 26.1% 25.3% 21.0% 14.6% 24.4% 24.8% 16.7% 8.4% 8.4% 8.9% 14.0% Income Tax Rate 15.0% 6.4% 6.0% 4.8% 2.9% 5.1% 6.6% 7.0% 7.5% 8.6% 7.9% 10.7% Net Profit Margin 12.8% d623.0 01017 0651.5 357.9 d140.3 d366.8 0489.4 0830.9 0581.5 d691.4 22.8 100 Working Cap'l ($mill) 900 1463.3 1508.1 2548.7 2533.4 1452.3 440.0 936.6 926.5 927.7 928.8 929.8 900 Long-Term Debt ($mill) 800 1936.2 1842.0 2059.5 2156.9 2333.5 1952.0 2101.7 2194.8 2392.6 2331.2 2813.1 3300 Shr. Equity ($mill) 4650 15.3% 15.7% 10.3% 5.3% 10.4% 20.5% 17.3% 20.4% 22.7% 12.8% 16.0% 24.0% Retum on Total Cap'l 24.5% 24.7% 25.9% 20.0% 8.5% 14.7% 23.4% 24.0% 27.6% 30.5% 16.7% 20.2% 30.5% Retum on Shr. Equity 28.5% 15.7% 13.7% 7.5% NMF 2.7% 9.7% 10.7% 13.3% 15.0% 2.9% 13.0% 13.5% Retained to Com Eq 15.0% 37% 47% NMF 81% 59% 55% 52% 51% 83% 36% 56% All Div'ds to Net Prof 47% BUSINESS: Darden Restaurants is the world's largest casual units). Spun-off Red Lobster, 5/15; Four Corners Property Trust dining operator. At 5/30/21, had 1,834 units in the U.S. and Cana- 11/15. Depr. rate: 4.6%. Has 177,000 employees. Officers/directors da. Licenses to 78 franchisees overseas. Chains include: The Olive own less than 1.0% of common stock. Vanguard Group, 10.6%; Garden (875 units); LongHom (533 units); Cheddar's Scratch Kitch- Capital World Inv. 9.0%. (8/21 Proxy). CEO: Eugene Lee. In- en (170 units); Capital Grille (63 units); Yard House (81 units); corporated: Florida. Address: 1000 Darden Center Drive, Orlando, Bahama Breeze (42 units); Seasons 52 (44 units); Eddie V's (26 FL 32837. Telephone: 407-245-4000. Internet: www.darden.com. We have increased our fiscal 2022 menus to remove low-preference and low- (years end on last Sunday in May) satisfaction items. This has helped the share-net estimate for Darden company to serve its most popular dishes Restaurants by $1.65, to $7.75. The to more guests, while also saving the chefs company finished fiscal 2021 in strong time and reducing food waste. Moreover, fashion, reporting earnings of $2.03 a Darden also invested in technology to share, $0.16 better than our estimate, and streamline its to-go capabilities, thus we 14.0%