Starbucks Exchange rate between Croatian kunas and U.S.$ Assignment Help
1.Starbucks in Croatia. Starbucks opened its first store in Zagreb, Croatia in October 2010. In Zagreb, the price of a tall vanilla latte is 25.70kn. In New York City, the price of a tall vanilla latte is $2.65. The exchange rate between Croatian kunas (kn) and U.S. dollars is kn5.6288/$. According to purchasing power parity, is the Croatian kuna overvalued or undervalued?
2.Suppose Starbucks consumes 100 million pounds of coffee beans per year. As the price of coffee rises, Starbucks expects to pass along 60% of the cost to its customers through higher prices per cup of coffee. To hedge its profits from fluctuations in coffee prices, Starbucks should lock in the price of how many pounds of coffee beans using supply contracts?
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3.In its 2009 annual report, Starbucks shows that as of September 27, 2009, it owned $21.5 million in marketable securities designated as available-for-sale. On the same date, Starbucks owned $44.8 million in marketable securities designated as trading securities. Assume that Starbucks sold no marketable securities during the month of October, 2009.
a. What would have happened to Starbucks’s net income for the month ended October 31, 2009, if the stock market crashed and share price valuations fell, on average, by 50 percent?
b. Under the same scenario as (a), what could management have done to lessen the impact of the crash on net income? What management decision would have increased the negative impact on net income?
c. Why might management want to classify marketable securities as available-for-sale instead of trading?
4.Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused space in Shrieves’ main plant. The machinery’s invoice price would be approximately $200,000, and it would cost an additional $40,000 to install the equipment. The machinery has an economic life of 4 years, and machine equipment would be depreciated over 4-year usingstraight line basis depreciation. The machinery is expected to have a salvage value after tax of $25,000 after 4 years of use.
The new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit. Each unit can be sold for $200. Further, to handle the new line, the firm’s net working capital would have an amount equal to 12% of sales revenues. The firm’s tax rate is 40%, and its overall weighted average cost of capital is 10%.
Calculate the net cash flows for each year. Based on these cash flows, what are the project’s NPV, IRR, MIRR, and payback?
Do these indicators suggest the project should be undertaken?
5.Holiday manufacturing is considering replacing an existing machine.The new machine costs $1.2 million and requires installation costs of $150,000.The existing machine is 2 years old, cost $800,000 new, and has a book value (UCC) of $367,962.The current market value of the machine is $185,000.The machine could be used for 5 more years, when it would be worth $50,000. Over its 5-year life, the new machine should reduce operating costs by $350,000 per year.The CCA rate on the machine is 30 percent. The new machine could be sold for $250,000, net of removal and cleanup costs, at the end of 5 years.An increase investment in net working capital of $25,000 will be needed to support operations if the new machine is acquired.The firm has a 9 percent cost of capital and a 40 percent tax rate. Determine the NPV and IRR of the proposal.
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