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Fin 465

In: Business and Management

Submitted By FIN465
Words 418
Pages 2
To estimate SBUX cost of equity I used 60 months of return, 104 weeks of return, and 250 days data of return from my spreadsheets. First, I calculated SBUX monthly beta and it equals 1.2, the weekly beta equals .8, and the daily beta was 1.00. I estimated the error in the beta estimates and appear to be .4. I got this number by subtracting the monthly beta 1.2 from the weekly beta .8.
I visited four different websites such as Yahoo Finance, Reuters, Nasdaq, and the Value Line beta shown in Damodaran’s company data (spreadsheet) and each one gives a different beta. Yahoo Finance gives beta of .78, Reuters has a beta of 1.21, Nasdag gives a beta of 1.11, and Value Line beta is 1.1.
My preferred value for the market risk premium from the data is the Geometric Average 1.71%. The source of the risk premium is historical and I chose it because the data is most current. People are drinking much more coffee from the past and the risk premium is low which is more secure for the company. I also used historical data for my calculation and I believe that it produces the most accurate results.
Based on Yahoo Finance and SBUX 10K I found that the Debt $549.6 M, Income tax expense $674.4 M, EBT $2059.1 M and D/E equals 10.62%. My Bottom-up beta is 1.12. I came up with number by multiplying Avg Beta- unlevered with (1+(1- Tax rate) * D/E mkt). My Tax rate 32.75%.
I used this Ke=r+ βMRP to get my Cost of Equity. = 5.11+1.12 (1.71)
My average beta was 1.00 I calculated 1.2+.8+1= 3 = 3/3 = 1 and my new cost of equity will be Ke = 7.01%
I found SBUX credit rating from Standard and poor’s website A-. SBUX carried 549.6 M in debt. Based on 10K footnote SBUX issues maximum of $500 M. The risk premium for 10 years bonds of A- is 89 basis points and the 10 years rate is 4.59%. So I assume that the current cost of debt for 5.48%
WACC=WdKd1-T+WeKe. I have Wd = 10.62% form Yahoo...

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