Nataly Bruk

Finance 515 (Managerial Finance)

Second Course Project
Determination of WACC for Starbucks Corporation
A firms Weighted Average Cost of Capital (WACC) is defined as the cost of
capital after tax (Berk, 2013). This is the cost of obtaining financing at a companys
mix and debt and equity. The formula for determining a companys WACC is:
rWACC = (E/E+D) rE + D/(E+D) rD (1-TC)
The variables in this equation are:
E= the market value of a firms Equity
D= the market value of a firms Debt
rE = equity cost of capital
rD = debt cost of capital
(1-TC)= corporate tax rate- 40%
ri= rf + i * (RMkt-rf)
rf= YTM on 10 year US treasury security (12/5/14) 2.31
= 0.98
(RMkt- rf)= 4%
rE= 2.31+ (0.98*4)= 6.23
Data for Starbucks September 28, 2014
D= 2.05 Billion (550,000, 400,000, 750,000, 350,000) from Finra-Markets
YTMs of bonds from above: 6.250, 0.94, 3.85, 3.04
Weighted average of YTM for amount of bonds: 26.83, 19.51, 36.59, 13.97
rD: 1.6769+ 0.1834+ 1.4087+ 0.4247=3.69
D/E= 38.84 (from this we calculate E= 2.05/0.3884= 5.278)
E= 5.278 Billion

rWACC = (5.278/5.278+2.05)6.23+ 2.05/(5.278+2.05)3.69 (1-0.40)=

4.49+0.61932= 5.11
For the majority of the values I am confident in my answers. I took E directly
from the balance sheet, and checked my values by subtracting total assets from
total liabilities. I also checked E by solving for E from D/E taken from yahoo finance
(38.84). I am confident that D is correct, I checked this value on the balance sheet,
on yahoo finance, and I also totaled all bonds on Finra and all values were the same.
I calculated rE to be 6.23. I used ri= rf + i * (RMkt-rf) as the equation. rf was
taken from the treasury resource center as 2.31, the YTM on a 10 year US treasury
bond on 12/5/14. The beta of 0.98 was taken from yahoo finance. (RMkt-rf) was
used as the 4% value given in the assignment instructions. I think if any value is
incorrect in this equation I believe it to be (RMkt-rf) of 4%.
For the rD value of 3.69 I computed the weighted average of all bonds and
their YTM. The value is the sum of the weighted averages of the YTMs. I believe
this value to be correct. Finally I used the corporate tax rate of 40%. I think that
this value may be high.
Comparing my value of 5.11% to 10.63% obtained from thatswacc.com I see
that my value is on the low side. When I corrected values on thatswacc.com that I
am 100% confident to be correct (E,D, and rD) I got a value of 8.52%.
thatswacc.com estimated corporate Tax rate to be 30.62%, a value lower than my
40%. Their cost of equity was 10.84%, which is much higher than my 6.23%. This
can be attributed to their rf of 3% (mine was 2.31), our betas were identical at
0.98, but their historical market return was 11% (11-3= 7%) which was much higher
than mine. Their debt and equity values were much different than mine D=
1,673,850,000 and E= 64,231,850,000. I believe the new calculated value of 8.52%

to be closer to correct than 10.63%. I do not think that the rWACC of Starbucks is as
low as 5.11% so I assume that it falls somewhere between 5.11% and 8.52%.

Bibliography
Berk, J. D. (2013). Corporate Finance, 3rd Edition. Boston, MA: Pearson.
Financial Industry Regulatory Authority. (2014, 05 12). http://www.finra.org/.
Retrieved from FINRA Investors Bond Detail: http://finramarkets.morningstar.com/BondCenter/Results.jsp
Morrison Analytics. (2014, 12 05). Starbucks Corporation WACC analysis. Retrieved
from thatswacc.com: http://thatswacc.com/
U.S. Department of the Treasury. (2014, 12 05). Daily Treasury Yield Curve Rates.
Retrieved from www.treasury.gov: http://www.treasury.gov/resourcecenter/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Yahoo Finance . (2014, 12 05). Starbucks Key Statistics. Retrieved from Yahoo
Finance: https://finance.yahoo.com/q/ks?s=SBUX+Key+Statistics