Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are given the task of coming up with a cost of capital for Starbucks, a multinational chain of coffeehouses, and using that cost of
You are given the task of coming up with a cost of capital for Starbucks, a multinational chain of coffeehouses, and using that cost of capital to do some calculations. Weekly return data for the past two years are in the spreadsheet, in rows to of the "PART tab. These historical data include Starbucks stock price, Starbucks equity return, the S&P return a proxy for the total market and a measure of the riskfree return.
Here are some relevant facts:
Please assume that Starbucks faces a tax rate of percent. It has a capital structure that includes both equity $ billion and debt $ billion with no excess cash on the balance sheet. You are welcome to assume that Starbucks has a "debt beta" of zero, and Starbucks' credit profile is consistent with borrowing at a pretax rate that is the same as the riskfree rate. Now the riskfree rate of return is percent, and the market return is percent.
Questions:
A Based on the historical data above, what is the implied "systematic risk" measured by the "beta" of Starbucks equity? points
B What is the weekly volatility standard deviation of Starbucks equity excess return over the past two years? points
C What is the weekly Sharpe ratio of Starbucks equity return? Sharpe ratio use geometric mean when taking expectation points
D Based on this equity beta estimate, what is your estimate of the "asset beta" for Starbucks? points
E What is the aftertax cost of debt? points
F What is the estimated cost of equity using CAPM model? points
G What is the aftertax weighted average cost of capital of this business at the leverage? points
H Suppose that the business generated free cash flows of $ billion in the most recent year, and is growing at a stable rate. This value, together with the WACC estimated above and the current value of the company's securities outstanding, imply that growth rate. What is that growth rate? please answer to the nearest hundredth of a percent points
Do it in excel please!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started