Question

The following table gives abbreviated balance sheets and income statements for Starbucks. At the end of fiscal 2014, Starbucks had 748 million shares outstanding with a share price of $81.25. The company's weighted-average cost of capital was about 9%. Assume a tax rate of 35%.

Balance Sheet
	End of Year		Start of Year
Assets
Current assets:
Cash and marketable securities	1,844		3,234
Accounts receivable	948		839
Inventories	1,091		1,111
Other current assets	285		288
Total current assets	4,169		5,471
Fixed assets:
Net fixed assets	3,519		3,201
Other long-term assets	3,064		2,845
Total assets	10,752		11,517
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	2,244		1,940
Other current liabilities	795		3,438
Total current liabilities	3,039		5,378
Long-term debt	2,048		1,299
Other long-term liabilities	394		360
Total liabilities	5,481		7,037
Total shareholders' equity	5,272		4,480
Total liabilities and shareholders’ equity	10,752		11,517
Income Statement
Net sales	16,448
Cost of goods sold	6,859
Selling, general, and administrative expenses	5,655
Depreciation	710
Earnings before interest and taxes (EBIT)	3,224
Interest expense	64
Taxable income	3,160
Tax	1,092
Net income	2,068
Dividends	783
Addition to retained earnings	1,285
(figures in $ millions)

a. Calculate the market value added. (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)

Market value added            $  million

b. Calculate the market-to-book ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Market-to-book ratio            

c. Calculate the economic value added. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Economic value added            $  million

d. Calculate the return on start-of-the-year capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Return on capital             %

Answer 1

Answer:

a.) Market Value Added:-

MVA = (Market Price Per Share* No. of Equity Share) - Equity Shareholder's Fund

= (81.25*748)-5272

= 55503

b.) Market to Book Ratio = Market VAlue of Firm / Book Value of Firm
=748*81.25 / 10752
=565.24%

c.) Economic Value Added= NOPAT- (Ko*Average Capital Employed)

where,

NOPAT = EBIT(1-Tax) = 3224(1-0.35) = 2095.6

Average Capital Employed = (capital at the beginning + capital at the end of the year)/2

Capital Employed = Equity Share Capital+ Long Term Debt + Other Long Term Liabilities

Start Of Year = 4480+1299+360 = 6139

End Of Year = 5272+2048+394 = 7714

Average Capital Employed = 6926.5

EVA=   NOPAT- (Ko*Average Capital Employed)

= 2095.6-(9%*6926.5) = 1472.22

d.) Return On Capital = (Net Operating Profit/Employed Capital)
=2095.6/6139
=34.13%