fin516 week 2 mini case Essay

1199 Words Sep 9th, 2014 5 Pages
Select a major industrial or commercial company based in the United States and listed on one of the major stock exchanges in the United States. Each student should select a different company. Avoid selecting an insurance company or a bank, because the financial ratios for these financial businesses are different. Write a seven-to-eight-page double-spaced paper answering and demonstrating with calculations and financial data the following questions.
1. What is the name of the company? What is the industry sector?
Starbucks Corporation is in the Food and Beverage industry
2. What are the operating risks of the company?
Economic conditions in the US and certain international markets could adversely affect Starbucks’ business and
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What is the company’s current marginal tax rate?
Income taxes for the fiscal year ended 2012 resulted in an effective tax rate of 32.8% compared to 31.1% for fiscal year 2011.
(Starbucks Coffee Company, 2013)

9. What is the cost of debt before and after taxes?
Before tax cost of debt calculations year 2013
2012
interest charges
28.1
32.7 interest bearing debt
1299.4
549.6
Before tax cost of debt
2%
6%

After tax cost of debt

2013
2012
marginal tax rate
32.80%
31.10%

2013
2012
Interest expense
$28.10
$32.70
Tax savings, -taxrate x int expense
-$9.22
-$10.17
Effective after tax cost od debt, Interest expx (1-T)
$6.19
$7.01

0.477%
1.275%

10. What is the cost of preferred stock (if any)? Starbucks does not have any outstanding preferred shares. (investopedia, 2011)

11. What is the cost of equity? (investopedia, 2011)
A firm’s cost of equity represents the compensation that the market demands in exchange for owning shares in starbucks (investopedia, 2011)

Dividend 2013
0.89
Dividend 2012
0.72

Dividends per share - next year
1.100138889
Current market value of stock (09/12/2014)
75.47
Growth rate of dividends
0.24

cost of equity
25.07%

12. What is the cash dividend yield on the common stock?
Dividend Yield = Annual Dividend / Current Stock Price
Annual Dividend
0.89
Current stock price close sept 12
75.47
Dividend Yield

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