Balance Sheet and Market Value

| September 28, 2018

The capital structure decision and
the cost of capital
Balance Sheet and Market
Value of Your Company’s Liabilities and Equity
Refer to Starbucks’
Corporation most recent balance sheet. Review the “liabilities and equity side”
of the balance sheet.
(a) Short-term liabilities
(or debt) and long-term liabilities
Find out from the balance
sheet of the company the total of the short-term liabilities (also called
“short-term debt”) and long-term liabilities (also called “long-term debt”).
(b) Equity
The market value of equity
is by definition equal to the number of shares outstanding times the market
price per share. Find out the number of shares outstanding and the recent price
per share. Then multiply one by the other in order to find the market value of
equity of your company. If you have a problem finding out the number of shares
outstanding, you may go to.google.com/”>http://finance.google.com and insert the name of your company. The market value of
equity of your company is what is called “Mkt Cap,” or market capitalization.
An alternative site is.yahoo.com/”>http://finance.yahoo.com where you may insert your company’s name and get the market
capitalization.
Once you have this
information, prepare a 2- to 3-page paper with the following:
1) Compute the debt ratio
of your company (total liabilities divided by the total liabilities plus
equity) and the debt-to-equity ratio (total liabilities divided by total
equity). Show these two ratios for short-term liabilities only and
for long-term liabilities only (instead of total liabilities, use just
short-term liabilities and long-term liabilities). Show all of your work
and calculations.
2) Give your
recommendations as to whether or not you consider these ratios to be too small
or too large. Should Starbucks Corporation increase its
debt or take steps to pay off its debt?
3) Compute the
debt-to-equity ratios for two other companies in the same industry as Starbucks
Corporation. Which of these three companies has the
highest debt-to-equity ratio, and why do you think it chose to have a
relatively high ratio? Which of these three companies has the lowest
debt-to-equity ratio, and why do you think it chose to have a relatively lower
ratio?
4) What do you perceive you
have learned from this assignment? Which of the following learning outcomes do
you feel you have mastered?
·
Identify and discuss the
concept of optimal capital structure.
·
Discuss the advantages and
disadvantages of debt financing and of equity financing.
Provide a brief evaluation
of this assignment.
Note: Report/assignment will not be accepted without proper
citations and references. You must use the sources from the background material
together with the sources you find on your own. It is also required that
you answer all the questions related to learning outcomes.
Assignment Expectations
·
Describe the purpose of the
paper and provide a conclusion.
·
Answer the SLP questions
clearly and provide necessary details and calculations. Review “Tips for Good
Writing” [.trident.edu/CourseHomeModule.aspx?course=56&term=92&module=3&page=custom1″>https://cdad.trident.edu/CourseHomeModule.aspx?course=56&term=92&module=3&page=custom1] and a guideline to write a.trident.edu/Presentation.aspx?course=56&term=115&presentation=114508″>well-structured
paper.
·
Write clearly and
correctly—that is, no poor sentence structure, no spelling and grammar
mistakes, and no run-on sentences.
·
Provide citations to
support your argument and references on a separate page. Use APA format to
provide citations and references [.english.purdue.edu/owl/resource/560/01/”>http://owl.english.purdue.edu/owl/resource/560/01/].
·
Answer all the questions in
an essay format. Do not type questions in the paper.
·
Type and double-space the
paper.
The following criteria will
also be used to assess your paper:
>Precision: Does the paper address the question(s) or task(s)?
>Breadth: Is the full breadth of the subject addressed?
>Depth: Does the paper/report address all elements of the topic in
sufficient depth? Does it include and apply the background reading and other
background resources? Are they included as references?
>Critical thinking: Are the concepts of this module applied accurately, logically,
and relevantly?
>Organization: Is the paper organized in a coherent and systematic manner?
Are headings included in all papers longer than two pages?
>Clarity: Is the writing clear and are the concepts articulated
properly? Are paraphrasing and synthesis of concepts the primary means of
response to the questions, or are thoughts conveyed through excessive use of
quotations?
In addition, this paper
will be graded with the following criteria in mind:
A. Provide a direct answer
to all three assignment questions—focus only on these three questions.
B. Reference all of your
sources of information, both within the text as well as with a bibliography at
the end.
C. For all calculations,
show all of your work and demonstrate that you understand the steps.

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