Should Brown-Forman Purchase Souther Comfort

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1.0 Executive Summary: The Management of Brown-Forman, a globally leading player in the wines and spirits business was faced with a major capital investment decision towards the acquisition of Southern Comfort Corporation also a player within the same wine industry towards the middle part of 1978. This report is intended to guide the Brown-Forman Corporation (BFC) in evaluating the feasibility of the asking price of $94.6 million and the possible effect of the proposed acquisition on Brown-Forman’s share price. It is therefore important to unravel this misery by providing enough and adequate information that will guide the BF’s management by answering the surrounding questions facing the company. “Should BF buy Southern Comfort Corporation (SCC) at the asking price of $94.7 million? On what key assumptions should the management based their decision either to purchase the SCC or not? If the management decide to acquire SC, to what key considerations should the President devote his attention in order to make the acquisition an economic success and lastly how appropriate is BF’s hurdle rate of 12% for existing projects. The methodology adopted in carrying out this assignments include among others, checking the company’s background in terms of its acquisition strategy over time and its unique niche in acquiring Southern Comfort Corporation, analyzing the effect of Brown-Forman’s market strategy on the law of demand and supply in a slow market, carrying out swot analysis on the corporation and detailed interpretation of the available of financial data to determine the viability of the proposed acquisition. The limitation encountered is lack of relevant figures to be able to perform a net present value assessment on Southern Comfort. Also looking at the value of the investment over time with the repayment of the loan and the increase in capital value, it is

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