Part One – (85 points)
Company Introduction: Starbucks, Inc.
Founded in 1971 with a single store in Seattle, Starbucks (SBUX) today is connected with millions of customers, more than 20,000 retail stores, located in 65 countries. Starbucks offers a range of exceptional products that customers enjoy in our stores, at home, and on the go. This includes premium coffee and tea, handcrafted beverages, merchandise including equipment, packaged goods, music, refresher energy drinks, juices and fresh food. Starbucks brand portfolio includes Starbucks Coffee, Seattle’s Best Coffee, Teavana, Tazo, Evolution Fresh, La Boulange and Torrefazione Italia Coffee. SBUX went public in June, 1992 at a price of $17 per share. As of September, 2014 SBUX earned $16.5 billion in revenue and $2.1 billion in net earnings. 
Before analyzing and valuing SBUX, it is important to understand who the company is, what and where it sells, and how the company finances its operations. For this assignment, assess the following:
** The entire worksheet needs to be completed on SBUX. You cannot delete any lines but can add in more information if you believe it will help to better make your assessment. You do not need to calculate any additional information on Dunkin Group.
Part II (15 points)
Byron Productions has sales in the most recent year of $650M, and EBIT of $250M. The firm also had capital expenditures of $120M and depreciation expense of $90M. Working capital needs are 9% of sales. The firm expects sales, EBIT, capex, and depreciation to grow by 18% in Year 1 and 13% in Years 2 and 3. Beginning in Year 4, the growth rate will drop to 5%, and the return on new invested capital will be 8.5% for the foreseeable future. The firm is financed with $1.05B in debt and $1.05B in equity, the bondholders require an 7.5% return, and the stockholders require a 11% return. The relevant tax rate is 34%. The firm has $50M in excess cash, investments in other company’s worth $125m and contingent liabilities of $150M.
Estimate the Enterprise and Equity Value using DCF analysis. Use the continuing value formula on the bottom of page 41 in the book to calculate the terminal value. If the stock is currently trading in the market at $15 per share, do you think it is undervalue, overvalued or fairly valued based on your DCF model of intrinsic value. Assume 130M shares outstanding.
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