Dunkin Brand/ Starbucks Performance Test

ACCT 600 CAPSTONE |

Starbucks to Acquire Dunkin’ Brands |

Performance Tests |

10/xx/20xx

|

Table of Contents

1. Dunkin Brands

1.1 Weighted Average Cost of Capital 3

1.2 Value of the Firm's Operations 4

1.3 Firms Intrinsic Value 5

1.4 Firm's Market Value 8

1.5 Firm's Book value 8

1.6 Transaction Details 8

1.7 Synergies and Opportunities 8

2. Bibliography 9

1. Dunkin Brands:

1.1 Weighted Average Cost of Capital.

Weighted Average Cost of Capital (WACC) is calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk. IV

Here is the WACC and supporting information for Dunkin' Brands Group, Inc. (DNKN) as of 12/31/201: V

Element | From Financial Statements |

WACC: | 6.30% |

Cost of Debt rD: | 6.29% |

Corporate Tax Rate TC: | 40.01% |

Total Debt D: | 1,669,175,000 |

Total Equity E: | 3,580,000,000 |

Total Firm Value V: | 5,249,175,000 |

Cost of Equity rE: | 7.48% |

Source: The Web's Best WACC Calculator VI

The Cost of Equity (rE) listed above is calculated using the Capital Asset Pricing Model (CAPM) based on the values below. You can also change the assumptions in the CAPM model. V

The CAPM model defines the rate of equity return as rE = rf + β(rM - rf).V

CAPM Component | Calculated Value: |

Beta: | 0.56 |

Historical Market Return rm: | 11.00% |

Risk Free rate rf: | 3.00% |

Source: The Web's Best WACC Calculator VI

Below are key financial metrics, Balance Sheet and Income Statement data that were used to calculate WACC as of 12/31/2012. V

Key Statistics For: | Dunkin' Brands Group, Inc. (DNKN) |

Market Cap...