WACC Template

Prepared by Dheeraj Vaidya, CFA, FRM

dheeraj@wallstreetmojo.com

visit - www.wallstreetmojo.com
WACC Example - Starbucks (by wallstreetmojo.com)
WACC Formula = (E/V * Ke) + (D/V) * Kd * (1 – Tax rate)

E = Market Value of Equity

V = Total market value of equity & debt
Ke = Cost of Equity
D = Market Value of Debt
Kd = Cost of Debt
Tax Rate = Corporate Tax Rate

STEP 1 – FIND THE MARKET VALUE OF EQUITY

Market Value of Equity = Number of shares outstanding x current price.

source: Starbucks SEC Filings

As we can see from above, the total number of outstanding shares are 1455.4 million
Current Price of Starbucks (as of close of December 13, 2016) = 59.31

Market Value of Equity 86,319.8 = 1455.4 x 59.31 = $86,319.8 million

STEP 2 – FIND THE MARKET VALUE OF DEBT

As of FY2016, book value of Debt is the current portion of long-term debt ($400) + Long Term Debt ($3202.2) = $3602.2 million

When we further read about Starbucks debt, we are additionally provided with the following information –
As we note from above, Starbucks provide the fair value of the Debt ($3814 million) as well as book value of debt

STEP 3 – FIND THE COST OF EQUITY

We use the CAPM model to find the cost of equity.

Ke = Rf + (Rm – Rf) x Beta

RISK-FREE RATE
Here, I have considered 10 year Treasury Rate as the Risk-free rate. Please note that some analyst also take a 5 year treasury ra
EQUITY RISK PREMIUM (RM – RF)
For the United States, Equity Risk Premium is 6.25%.

BETA
Cost of Equity = Ke = Rf + (Rm – Rf) x Beta

Ke 7.50% = 2.47% + 6.25% x 0.805

Cost of Equity = 7.50%

STEP 4 – FIND THE COST OF DEBT

Using the interest rate and fair value, we can find the weighted average interest rate of the 

Issuance Fair Value Interest Rate Interest

2016 notes 400 0.88% 3.5
2018 notes 357 2.00% 7.14
2021 notes 511 2.10% 10.731
2021 notes 255 2.10% 5.355
2022 notes 526 2.70% 14.202
2023 notes 839 3.85% 32.3015
2026 notes 509 2.45% 12.4705
2045 notes 417 4.30% 17.931
Total Debt 3814 Total Interest 103.631

EffectiveInterest Rate 2.72%

STEP 5 – FIND THE TAX RATE

For FY2016,
Effective tax rate 32.9% = $1,379.7 / $4,198.6 = 32.9%

STEP 6 – CALCULATE WEIGHTED AVERAGE COST OF CAPITAL (WACC) OF STARBUCKS

We have collected all the information that is needed to calculate Weighted Average Cost of Capital.

Market Value of Equity = $86,319.8 million

Market Value of Debt (Fair Value of Debt) = $3814 million
Cost of Equity = 7.50%
Cost of Debt = 2.72%
Tax rate = 32.9%

WACC Formula = E/V * Ke + D/V * Kd * (1 – Tax Rate)

WACC 7.26%

Weighted Average Cost of Capital formula = (86,319.8/90133.8) x 7.50% + (3814/90133.8) x 2.72% x (1-0.329)
o.com)

Debt ($3202.2) = $3602.2 million.

nformation –
book value of debt

lyst also take a 5 year treasury rate as the risk-free rate. Please check with your research analyst before taking a call on this.
age interest rate of the total fair value of Debt ($3,814 million)
72% x (1-0.329)
ing a call on this.