Assignment 1: Cash Flows and Dividend Valuation In this Assignment you will be reviewing the case study of Starbucks Corporation and completing questions and exercises relating to financial reports, financial statement analysis and financial valuation. This will show you how investors and analysts understand the present profitability and risk of firms and forecast future investment decisions. Questions and Exercises: Income and Cash Flows Answer the following questions from your textbook: (view grading rubric):
1.Chapter 3: Questions and Exercises: 3.2 (p.196): Articulation of the Statement of Cash Flows with Other Financial Statements. Describe how the statement of cash flows is linked to each of the other financial statements (income statement and balance sheet). Also review how the other financial statements are linked with each other.
2.Chapter 3: Integrative Case 3.1 Starbucks, Cash Flows: f (p. 219): Refer to the income statement for Starbucks in Exhibit 1.27). Compute the amount of EBITDA for 2010, 2011, and 2012.
3.Chapter 11: Integrative Case 11.1 Starbucks, Dividend Valuation; a, b (p. 903): a. Use the CAPM to compute the required rate of return on equity capital for Starbucks. b. Compute the weighted-average cost of capital for Starbucks as of the start of Year +1. At the start of Year +1, Starbucks had $550 million in outstanding interest-bearing debt on the balance sheet and no preferred stock. Assume that the balance sheet value of Starbucks’ debt is approximately equal to the market value of the debt. Assume that at the start of Year +1, Starbucks will incur interest expense of 6.25% on debt capital and that Starbucks’ average tax rate is 33.0%.
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