The following table gives abbreviated balance sheets and inc

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 %

Solution

1-

Market value added

market value of equity - book value of equity

60775-5272

55503

market value of equity

748*81.25

60775

book value of equity

5272

2-

market price to book value ratio

market price per share/book value per share

81.25/7.048

11.52809

market price per share

81.25

book value per share

5272/748

7.048128

3-

Economic value added

NOPAT-(invested capital*WACC)

2132-(7713*9%)

1437.83

NOPAT = EBIT- tax

3224-1092

2132

invested capital = total assets-current liabilities

10752-3039

7713

WACC

9

4-

return on start of the year capital

net income/capital at start of year

33.69%

net income

2068

capital at start of year = total of liabilities and shareholders equity-total of current liabilities

11517-5378

6139