Case - Bayern Braueri Essay

436 WordsMay 20, 20152 Pages
BACKGROUND: Bayern Braueri is a 12th generation family owned German company based out of Munich. It specializes in the manufacturing and distribution of alcoholic beverages, beer. They have two award winning products a dark and light brew. Due to several factors the company is considering expanding its products into a new market sector created from the collapse of the Berlin wall. The firm recently purchased new equipment due to a fire which destroyed their previous equipment. The new equipment has increased their production capability making this new expansion possible. KEY ISSUES: There are a multitude of key issued used in the NPV calculation and decision to accept the project. Issue 1: Risk - Declining profit margins - Negative affect from A/R and A/P - Lander distributors not as creditworthy as current market - Eastern distributors and retailers lack of collateral to secure bank loans - Essentially financing distributors and retailers in the east - Capital expenditures and debt are increasing simultaneously - - lack of debt repayment structure - future liquidity may decline - pays dividends/ plans to increase them • Issue 2 Risk Free Rate - Rate: 8.25% - Calculated: page 3 footnote • Issue 3: Cost of Debt - 11% - Calculated: page 3, paragraph 3 • Issue 4: Beta - Beta 1.45 - Calculated: - unlevered industry beta 0.88 (yahoo finance) - applied BB’s debt to equity ratio to 0.88 (unlev industry beta) - Calculated firms beta using formula {levered beta = unlev beta * (1+[1-T]*[D / E]) • Issue 5: Cost of Equity - CoE ___% - Calculated: - CapM - Real German historical Rp of *-0.8%* during 1989 to 2014 - used DAX’s annual historical return • Issue 6: WACC - WACC ___% • Issue 7: Firms Growth Rate - BB perpetual growth rate at 2.45% -Calculated: - used Germany’s historical

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