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29. In fiscal year 2011, Starbucks Corporation (SBUX) had revenue of $11.70 billion, gross profit of $6.75 billion, and net income of $1.25 billion. Peet’s Coffee and Tea (PEET) had revenue of $372 million, gross profit of $72.7 million, and net income of $17.8 million.
a. Compare the gross margins for Starbucks and Peet’s.
Gross Marin = Gross Profit/Sales (Page 35)
Starbucks: ($6.75 gross profit / $11.70 sales) = 0.57692 x 100 = 58% GM
Peet’s: ($72.7 gross profit / $ 372 sales) = 0.19543 x 100 = 20% GM
b. Compare the net profit margins for Starbucks and Peet’s.
Net Profit Margin = Net Income / Sales (Page 36)
Starbucks: ($1.25 net income / $11.70 sales) = 0.10683 x 100 = 11% NPM
Peet’s: ($17.8 net income / $372 sales) =*…show more content…*

43. Consider a retailing firm with a net profit margin of 3.5%, a total asset turnover of 1.8, total assets of $44 million, and a book value of equity of $18 million. a. What is the firm’s current ROE? Return on Equity (ROE) = Net Income / Book Value of Equity (Page 43) b. If the firm increased its net profit margin to 4%, what would be its ROE? Return on Equity (ROE) = Net Income / Book Value of Equity (Page 43) c. If, in addition, the firm increased its revenues by 20% (while maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE? Return on Equity (ROE) = Net Income / Book Value of Equity (Page 43) 10. Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Project Cash Flow Today ($) Cash Flow in One Year ($) A −10 20 B 5 5 C 20 −10 Suppose all cash flows are certain and the risk-free interest rate is 10%. a. What is the NPV of each project? NPV = PV(Benefits) – PV(Costs) (Page 66) b. If the firm can choose only one of these projects, which should it choose? c. If the firm can choose any two of these projects, which should it choose? 3. Calculate the future value of $2000 in a. Five years at an interest rate of 5% per year. FV = C x (1 + r ) ^ n (Page 100) b. Ten years at an interest rate of 5% per year. FV = C x (1 + r ) ^ n (Page 100) c.

43. Consider a retailing firm with a net profit margin of 3.5%, a total asset turnover of 1.8, total assets of $44 million, and a book value of equity of $18 million. a. What is the firm’s current ROE? Return on Equity (ROE) = Net Income / Book Value of Equity (Page 43) b. If the firm increased its net profit margin to 4%, what would be its ROE? Return on Equity (ROE) = Net Income / Book Value of Equity (Page 43) c. If, in addition, the firm increased its revenues by 20% (while maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE? Return on Equity (ROE) = Net Income / Book Value of Equity (Page 43) 10. Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Project Cash Flow Today ($) Cash Flow in One Year ($) A −10 20 B 5 5 C 20 −10 Suppose all cash flows are certain and the risk-free interest rate is 10%. a. What is the NPV of each project? NPV = PV(Benefits) – PV(Costs) (Page 66) b. If the firm can choose only one of these projects, which should it choose? c. If the firm can choose any two of these projects, which should it choose? 3. Calculate the future value of $2000 in a. Five years at an interest rate of 5% per year. FV = C x (1 + r ) ^ n (Page 100) b. Ten years at an interest rate of 5% per year. FV = C x (1 + r ) ^ n (Page 100) c.

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