Question Details

[answered] Exhibit1. Anheuser-Busch Balance Sheet (in Million $, excep


Below are questions that go along with attached excel file, mainly need help solving the excel file and the formulas involved in the answers in excel on tabs labeled WACC, cash flow projections, and valuation.

1. What is the intrinsic value? Why is it so important? How is it estimated in business valuation?

2. What is WACC? Why is it so important in business valuation? Please estimate WACC for Anheuser in 2008 using the Excel template attached. In your estimation of cost of equity, use either CAPM or Dividend Discount Model but make sure to justify your model selection.

3. Assess InBev's bids for Anheuser in 2008 based on discounted cash flow valuation model. How do they compare with the firm's intrinsic value?

4. Complete the attached Excel sheet by projecting free cash flows, with the terminal date at the end. What should determine the "terminal date," i.e., when you stop forecasting annual cash flows and estimate a terminal value? Do you think 2012 is the appropriate "terminal date" for Anheuser-Busch given its circumstances at the end of 2007? Why?

5. Could you recommend an appropriate growth-rate assumption for Anheuser-Busch in the estimation of its terminal value? Justify your growth-rate assumption and estimate Anheuser's terminal value.

6. What is your best estimate (or the range of your estimates) of Anheuser-Busch's intrinsic value?

7. Should InBev's shareholders endorse the acquisition of Anheuser at $70 per share?





Exhibit1. Anheuser-Busch Balance Sheet (in Million $, except per share)

 

Dec.31 2006 Assets

 

Current Assets

 

Accounts receivable

 

Inventories

 

Other Current assets

 

Investments in affiliated companies

 

Total Current Assets

 

Plant & equipment, net

 

Intangible assets, including goodwill

 

Other assets

 

Total Assets

 

Liabilities and shareholders' equity

 

Current liability

 

Accounts payable

 

Accrued salaries, wages and benefits

 

Arrued taxes

 

Accrued interest

 

Total Current liability

 

Retirement benefits

 

Debt

 

Deferred income taxes

 

Other long term liabilities

 

Shareholders' Equity

 

Common stock, $1 par value, authorized 1.6 billion shares

 

Capital in excess of par value

 

Retained earnings

 

Treasury stock, at cost

 

Accumulated non-owner changes in shareholder equity

 

Total shareholders' equity

 

Commitments and contingencies

 

Total liabilities and shareholders' equity 219.20

 

720.20

 

694.90

 

195.20

 

1,829.50

 

3,680.30

 

8,916.10

 

1,367.20

 

584.10

 

16,377.20 1,426.30

 

342.80

 

133.90

 

124.20

 

218.90

 

2,246.10

 

1,191.50

 

7,653.50

 

1,194.50

 

152.90

 

1,473.70

 

2,962.50

 

16,741.00

 

-16,007.70

 

-1230.80

 

3938.70

 

16377.2 Source: Andrew Inkpen, InBev and Anheuser-Busch, Thunderbird School of Global Management, 2010. per share)

 

Dec.31 2007 283.20

 

805.20

 

723.50

 

212.60

 

2,024.50

 

4,019.50

 

8,833.50

 

1,547.90

 

729.60

 

17,155.00 1,464.50

 

374.30

 

106.20

 

136.40

 

222.40

 

2,303.80

 

1,002.50

 

9,140.30

 

1,314.60

 

242.20

 

1,482.50

 

3,382.10

 

17,923.90

 

-18714.70

 

-922.20

 

3151.6

 

17155 of Global Management, 2010. Exhibit2: Income Statement and Assumptions

 

(Millions of dollars)

 

Years Ended December 31, 2003 2004 2005 2006 Net sales

 

OPERATING EXPENSES:

 

Cost of goods Sold

 

S, G & A expenses

 

Depreciation, Depletion, and Amortiza 14,147 100.0% 14,934 100.0% 7,572

 

2,498

 

877 53.5%

 

17.7%

 

6.2% 8,050

 

2,591

 

933 53.9%

 

17.3%

 

6.2% 8,601

 

2,730

 

979 57.2%

 

18.2%

 

6.5% 9,176

 

2,833

 

989 OPERATING INCOME (EBIT)

 

OTHER EXPENSES (INCOME):

 

Interest expense

 

Non-operating income/expense 3,199 22.6% 3,361 22.5% 2,726 18.1% 2,720 402

 

365 2.8%

 

2.6% 454.5

 

437 3.0%

 

2.9% 455

 

508 3.0%

 

3.4% 451

 

597 PRETAX INCOME

 

INCOME TAXES 3,169

 

1,093 22.4%

 

7.7% 3,404

 

1,163 22.8%

 

7.8% 2,690

 

850 17.9%

 

5.7% 2,866

 

901 NET INCOME 2,076 14.7% 2,240 15.0% 1,939 12.9% 1,965 15,036 100.0% 15,717 NET INCOME PER SHARE,BASIC 4.95 4.56 5.72 6.05 NET INCOME PER SHARE,DILUTED

 

Effective tax rate 4.89

 

0.34 4.52

 

0.34 5.63

 

0.32 5.96

 

0.31 Capital expenditures (millions of $) 812.50 Working Capital Source: 5,640 Anheuser-Busch Annual Reports except the last three columns. 2006 2007 5 yrs 1 yr Revenue 100.0% 16,686 100.0% 3.4% 6.2% 100.0% 58.4%

 

18.0%

 

6.3% 9,840

 

2,982

 

996 59.0%

 

17.9%

 

6.0% 5.4%

 

3.6%

 

2.6% 7.2%

 

5.3%

 

0.8% 56.4%

 

17.8%

 

6.2% 17.3% 2,894 17.3% -2.0% 6.4% 19.6% 2.9%

 

3.8% 484

 

685 2.9%

 

4.1% 3.8%

 

13.4% 7.3%

 

14.7% 2.9%

 

3.4% 18.2%

 

5.7% 3,095

 

970 18.5%

 

5.8% -0.5%

 

-2.4% 8.0%

 

7.7% 20.0%

 

6.5% 12.5% 2,125 12.7% 0.5% 8.1% 13.6% 6.40 0.04%

 

0.0%

 

0.04% 5.3% 5.8% 5.3% 6.0% 6.32

 

0.31 5 year

 

0.33 5.2% 870.00 5.2% 7.1% 5.2% 35.9% 6,136 36.8% 8.8% 51.2% 10-yr Exhibit 1 (in Million $, except where noted) 31-Dec-06 31-Dec-07 15,717.10 16,685.70 5,552.10 5,849.60 35.33% 35.06% 2,719.60 2,894.00 17.30% 17.30% Net Income 1,965.20 2,115.30 Diluted EPS 2.53 2.79 Net Sales

 

Gross Profit

 

As a % of sales Operating Income

 

As a % of sales 715.00 # of shares outstanding

 

Operating cash flow before the

 

change in working capital

 

Common dividend paid per share (in

 

$)

 

Return on shareholders' equity

 

Total assets

 

Capital expenditures

 

Closing stock price (in $) 2,502.60 2,963.10 1.13 1.25 51.60% 59.70% 6,377.00 17,155.00 812.50 870.00 49.20 52.34 Source: Andrew Inkpen, InBev and Anheuser-Busch, Thunderbird School of Global Management, 2010. % change

 

6.20%

 

5.40%

 

(0.2) pts 6.40%

 

(0.0) pts 7.60%

 

10.30% 18.40%

 

10.60%

 

(8.1) pts

 

169.00% Management, 2010. 7.10%

 

6.40% Exhibit

 

$ millions

 

Equity market cap as of 12/31/2007

 

Book value of debt as of 12/31/2007 Credit rating

 

Beta

 

10-year U.S. treasury YTM as of 12/31/2007

 

A 10-yr corporate bond yield as of 12/31/2007

 

expected annual market risk premium

 

tax rate

 

dividend growth rate

 

last dividend

 

closing share price 12/31/2007

 

Cost of Equity Ke:

 

CAPM

 

Constant dividend growth (or "Dividend Discount Model")

 

WACC:

 

with Ke based on CAPM

 

with Ke based on Constant dividend growth model Sources:

 

(a) Find relevant information from the "Other Info" tab.

 

(b) Source: http://www.netadvantage.standardandpoors.com

 

(c)Souce: Center for Research on Security Price

 

(d) http://www.federalreserve.gov/releases/h15/data.htm

 

(e) http://ycharts.com

 

(f)http://people.stern.nyu.edu/adamodar/pdfiles/papers/ERP2012.pdf

 

(g) Estimated based on historical dividend payments. A

 

0.6

 

4.10%

 

5.50%

 

4.79%

 

32.61%

 

4.75% Weight Notes

 

(a) (b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(g)

 

(a)

 

(a) Assumption Period

 

Sales 6.00% annual growth rate OPERATING EXPENSES:

 

Cost of sales

 

S G & A

 

Dep. and am. 59.0% of total revenue

 

17.8% of total revenue

 

6.2% of total revenue Total operating expenses

 

OPERATING INCOME (EBIT)

 

PROVISION FOR INCOME TAXES 32.61% of operating income Operating Cash Flows

 

EBIT

 

Taxes

 

Depreciation and amortization

 

Operating Cash Flows

 

Net Capital Spending

 

Change in NWC

 

FREE CASH FLOW 5.19% of revenue or depr (whichever

 

51.21% of incremental sales (=OCF-NCS-Change in NWC) Base Year

 

2007 2008 2009 2010 1 2 3 0

 

$ 16,685.70 9,840

 

2,982

 

996 - - - 13,818

 

2,894

 

970 $

 

$ 870 $

 

496 $ 0 - $

 

(8,544) $ 0 - 0 $

 

$ - 2011 2012 4 5 Notes for assumptions made 1. Historical pattern (including one-year growth rate of 6.1%); (2) Exp Expectation of rising commodity prices - - 0 $

 

$ - 0 $

 

$ - wth rate of 6.1%); (2) Expectation of recession and (3) strategy to expand globally Discounted Cash Flow Valuation Based on Constant Growth Assum

 

Your Growth Rate Assumption for TV

 

WACC

 

No. of common shares O/S (millions)

 

Debt

 

Year

 

Period

 

Cash flows (millions)

 

Terminal value (millions)

 

Free Cash Flows (with Terminal Value)

 

Value of Firm Vfirm

 

Less: Value of Long-term Debt Vd

 

Value of Equity Ve

 

Share Value 2007

 

0 2008

 

1 nt Growth Assumption 2009

 

2 2010

 

3 2011

 

4 2012

 

5

 


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