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Starbucks • Green Mountain Coffee • J.M. Smucker • Mondelez International

Processed and Packaged Goods Starbucks Corporation Module 8: Valuation Using the Abnormal Enterprise Income Growth Model Angie Zhao. Starbucks • Green Mountain Coffee • J.M. Smucker • Mondelez International. STARBUCKS. Rates and Ratios. Cost of enterprise capital ( r Ent )

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Starbucks • Green Mountain Coffee • J.M. Smucker • Mondelez International

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  1. Processed and Packaged Goods Starbucks Corporation Module 8: Valuation Using the Abnormal Enterprise Income Growth Model Angie Zhao Starbucks •Green Mountain Coffee •J.M. Smucker • Mondelez International

  2. STARBUCKS

  3. Rates and Ratios • Cost of enterprise capital (rEnt) • Calculated WACC 7.62% • WACC from Bloomberg 9.10% • Sales growth rates • 11% for first 5 years (2014 – 2018) • Fading at 1.7% per year for 5 years (2019 – 2023) to 2.5% in 2013 • Remain at 2.5% for 2024 and thereafter • EPM 10% • EATO 5.7

  4. Abnormal Enterprise Income Growth Model Share price (2/25/2014): $70.55 Market Cap(2/25/2014): $53.33b Market Cap(12/31/2013): $58.24b BV of Equity: $5.11b

  5. Discounted Cash Flow Model Share price (2/25/2014): $70.55 Market Cap(2/25/2014): $53.33b Market Cap(12/31/2013): $58.24b BV of Equity: $5.11b

  6. Residual Enterprise Income Model Share price (2/25/2014): $70.55 Market Cap(2/25/2014): $53.33b Market Cap(12/31/2013): $58.24b BV of Equity: $5.11b

  7. Abnormal Enterprise Income Growth Model Share price (2/25/2014): $70.55 Market Cap(2/25/2014): $53.33b Market Cap(12/31/2013): $58.24b BV of Equity: $5.11b

  8. Discounted Cash Flow Model Share price (2/25/2014): $70.55 Market Cap(2/25/2014): $53.33b Market Cap(12/31/2013): $58.24b BV of Equity: $5.11b

  9. Residual Enterprise Income Model Share price (2/25/2014): $70.55 Market Cap(2/25/2014): $53.33b Market Cap(12/31/2013): $58.24b BV of Equity: $5.11b

  10. Issues and Concerns • Growth rate: 11% • 2014 1Q Conference Call – 5% store growth, no mention about CPG and Foodservice segments • Used the average growth rate for 2010 – 2013 • Starbucks is NOT comparable to industry peers • Fading period: 5 years • Reasonable to assume growth will slow down during next half a decade • Required Rate of Return • My calculated WACC yields a calculated Enterprise Value closer to the market capitalization than WACC from Bloomberg • But does it necessarily mean my WACC is better than Bloomberg’s?

  11. Any questions?

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