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Question Description

1. Estimate the weighted-average cost of capital (WACC) for Starbucks.

  • Find the beta and other financials at www.morningstar.com .Estimate the expected stock returns and the relative proportions of equity and debt for Starbucks. Remember to use the market value of the equity, not its book value.
  • Finding the yield on the debt is a little trickier. You can look at the bonds issued by Starbucks at http://finra-markets.morningstar.com . Then estimate the cost of debt by averaging the bond yields.
  • For CAPM, you can use three-month treasury rate as the risk free rate. Use the corresponding index return to calculate the market risk premium.

2. Compare to the WACC in 2016 (on slides), why the WACC in 2019 is higher (or lower)?