Question 2: The attached spreadsheet (Q2 FCFF and Q2 FCFE) provides a template f

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Question 2: The attached spreadsheet (Q2 FCFF and Q2 FCFE) provides a template for calculating the value of equity (and value per share) of Starbucks using the FCFF and the FCFE approach. We assume that Starbucks goes through a period of high growth, followed by a transitioning period, before finally entering a period of steady state growth. There are two different models. The first assumes that the growth in NOPAT (for FCFF) and Net Income (for FCFE) declines linearly in the transition stage. The second model assumes an exponential decline in the growth rate Your task is to provide reasonable inputs for the cells highlighted in yellow [discount rates (from Q1A), growth in NOPAT/NI (g) and the reinvestment/retention rate (b)]. The numbers that currently appear in the highlighted cells are based on Assignment 1, these numbers should not be used for guidance in this assignment. A) In order to obtain reasonable estimates for the required inputs, do the following. First, calculate the historical growth in NOPAT, the historical growth in Net Income and the retention/reinvestment ratio (b) during the 2006-2014 period. The reinvestment rate of FIN 346 (INVESTMENTS) Net New Investments, NOPAT (at time t) is defined as: bt- NOPATt-1 EBIT-1*(1-%TAX) Dividendst-1 Net Incomet-i while the retention rate for Net Income (at time t) is defined as bt-1- data is provided in the spreadsheet SBUX COMPUSTAT. After you have obtained estimates for these measures in each year, calculate the time-series average and median for each measure. The time-series average is sensitive to extreme outliers, use the median instead B) Would you issue a buy/sell/hold recommendation on the stock based on the valuations per share that you received in part A)? C) Provide a brief interpretation of the key value drivers (b, g, and ROI/ROE) in each of the three stages of growth (except for ROI/ROE which is explicitly needed only in the steady state period) In order to obtain full marks for part A), you need to provide me with the excel spreadsheet that you used to calculate the inputs. If you are unable to complete part A), you can answer part B) and C) based on the default values provided in the template

Explanation / Answer

Aspa question first ( a) Calculate Net Income of historical growth by retention/reinvestment ratio.

(b)Duing the year 2006-2014

The digit that appears in the sheet/cell are based on the assignment 1 ,all numbers were used for this assigment .

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