Starbuck is a roaster, marketer, and retailer of specialty coffee operating in seventy-five countries. The company was incorporated in 1985, and its common stock trades at NASDAQ as SBUX. The company purchase and roast high-quality coffee selling it alongside handcrafted coffee, tea, beverages and fresh food items in its operated stores. The company also sells coffee and tea brands and licenses its trademarks through channels like foodservice accounts, licensed stores, and grocery. By October 1 st , 2017, the company had 27,339 restaurants throughout the world.
According to S&P, the company has a credit rating of A- and its outlook is stable. Moody rates Starbuck A2, and its outlook is watch negative. The Fitch rating gives the company an A- and a stable outlook. According to Moody, the company enjoys global brand strength a dominant position in the US in its market segment, diversification in the worldwide marketplace and innovative brand offerings. Moody believes that the company’s new creative brands, enhanced digital initiative, employee base and disciplined restaurant growth globally as strengthening the credit rating of the company.
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According to Fidelity Fixed Income, a company with a similar rating to Starbuck for a thirty-year bond will have a return of 4.53%. This is equivalent to the cost of debt for the company.
Beta for the company =0.74
Risk free rate =2.37%
Equity risk premium = 6%
Total liabilities + equity for Starbuck for the year ended Oct 2, 2016 =9086.2
Total equity =5890.7
Total debt = 3202.2
WACC = E/(E+D) *Cost of equity + D/(E+D) *Cost of debt *(1-T)
Weight for equity = 5890.7/(5890.7 + 3202.2) =0.6483
Weight of debt = 3202.2 /(5890.7 +3202.2) = 0.3524
Cost of equity or RE = 0.0237+0.74 *0.06 =0.0681 or 6.81%
WACC= 0.6483*0.0681 + 0.3524*0.0453(0.65)
=0.044 + 0.0104
=0.05455 or 5.5%
The WACC is comparable to what is found in other web pages
References
Moody's assigns A3 to Starbuck's proposed $1.0 billion note offering. (2017, November 21). Retrieved December 11, 2017, from https://www.moodys.com/research/Moodys-assigns-A3-to-Starbucks-proposed-10-billion-note-offering--PR_375689
Starbucks Corporation. (2016). Retrieved December 11, 2017, from https://www.sec.gov/Archives/edgar/data/829224/000082922416000083/sbux-1022016x10xk.htm#sA81B26E970E8EBC307543265204EBB47
