Boston Beer Essay

706 Words3 Pages
Background: In the year 1984, with the help of Rhonda Kallman, Jim Koch founded the Boston Beer Company. With his great-great-grandfather’s recipe, Koch believed that capitalizing on the vulnerabilities of imported beers would be simple by generating a high quality product. In ten years, Boston Beer became the largest craft brewer in the U.S. They currently maintained only 1.95 million in long-term debt after financing its working capital requirements and capital expenditures. The capital raised from initial public stock offerings had an estimated amount around $13 billion in the 4th quarter of the year 1995: an almost $7 billion dollar increase from the 4th quarter of the previous year (1994). With the knowledge that underwriters tend to underprice IPO’s, it is safe to say that with the increase in offerings in 1995, the price per share rage should be above $10 to $15. The company gained 2.2 million at 11.5% in debt to the Massachusetts Industrial Finance Authority to finance engineering and design improvements. Repayment of the debt consisted of principle payments of $50,000 in 1995, $75,000 in 1996-1998, $100,000 in both 1999 and 2000, and after that it was required that the balance be paid off. Boston Beer also entered into a $14 million line of credit with Fleet Bank, allowing borrowing at an interest rate equal to 8.75%. However, on the unused portion of the line, a fee of 0.15 percent was chargeable. All this debt is good however in the attempt to increase capital. The company consisted of a limited partnership that was to be dissolved in the month of November 1995 before the public stock offering, however, in mid-October, Boston Beer had not received approval from the sec; a process that can generally take from 1-6 months so they were face with a big problem. The regression analysis (shown above) resulted in a derived value of .817 for V and

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