Question

Starbucks' capital structure has been restructured from a primarily equity-financed company to a primarily debt-financed company, for example, via share repurchases, in order to leverage returns to investors.A. Yes.B. No.

Answer 1

Answer:

Starbucks

Starbucks' Capital Structure

Restructured from a primarily equity-financed company to a primarily debt-financed company:

A. Yes.

Explanation:

Starbucks' assets are more than 60% financed by long-term debts, with less than 40% financed by equity.  The advantage of having a higher debt leverage is to optimize the returns to the stockholders.  This is because interest expenses arising from the debts are tax-deductible.  The ROE (return on equity) is always higher for a debt-leveraged firm than an equity-financed firm because more of the net income will be available for distribution to stockholders, given the tax benefits of having more debts.