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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