This website uses cookies to ensure you have the best experience. Learn more

Bosten Beer Case Study

3942 words - 16 pages

IPO Pricing for Boston Beer Company Inc.

Case Summary

We address the following key questions regarding Boston Beer Company (BBC) to explore the issues surrounding its Initial Public Offering. First of all, we determine the fair value of BBC to be $211 million based on a DCF valuation of projected future cash flows and explain our key assumptions and potential problems arising from those assumptions. Second, we find BBC’s fair value to be $314 million by relative valuation and discuss how differences in operating strategies might translate into differences in financial ratios. Third, we determine BBC’s IPO price to be $15 per share. Finally, we look at the craft brewer industry as a ...view middle of the document...

The growth rates in net sales for the next ten years (including 1995) are therefore projected as: 45%, 41%, 37%, 33%, 29%, 25%, 21%, 17%, 13% and 9%. After ten years, the growth rate will remain steady at around 5%, which is the sum of real GDP growth rate at that time (2.5%) and the inflation rate of 2.8%.[1]

In the past five years, cost of goods sold as a percentage of net sales has been quite steady. We used an average rate of 44.7%. Gross profit is then estimated as 55.3% of net sales.

We believe it is also reasonable to assume that advertising, promotional and selling expenses are proportional to net sales since BBC has been adopting an intensive sales and marketing strategy to build up its market. The same linear variable assumption applies to general and administrative expenses because the company will have to continuously recruit employees and increase management efforts to sustain the sales growth. Therefore, we combine those expenses into one category -- total operating expense. Although individual expenses may vary in different years, the overall operating expense rate tends to be steady over years. In the last three years, on average, total operating expenses accounted for 48.1% of net sales. Other income/expense (net) is insignificant in size (less than 0.1%) and therefore left out in our financial projection.

Although the company as a partnership was not subject to income taxes, it will be taxed after public offering. We believe pro forma income is a more precise measure of value in a forward-looking perspective. For the past five years, the pro forma tax rate for the company is 42% on average.

Free Cash Flows were calculated as FCF=EBIT*(1-Tax) +Depreciation/Amortization - Increase in Working Capital - Capital Expenditures.

Depreciation and Amortization cost is assumed to be a variable cost proportional to net sales. The average depreciation and amortization cost is 0.7% of net sales from 1992 to 1994. Capital expenditures includes the replacement and addition to capital assets and should be proportional to depreciation and amortization cost. Using data from the past three years, capital expenditures are estimated as 230% of Depreciation and Amortization, or 1.61% of net sales. Change in Working Capital can vary significantly over years in the case of BBC and is estimated by the weighted average rate of change from Dec 1992 to Sept 1995, which comes out to 0.57% of net sales.

With all the free cash flow for the next ten years in place, discount factors are needed in order to calculate present value. BBC’s weighted average cost of capital is used as the discount factor and is calculated as KWACC = (Equity/Value) × KE + (Debt/Value) × KD× (1-Tax)

We assume that the book value of debt equals the market value of debt. As of Sept 30, 1995, short and long term debt totaled $1,950 thousand. Cost of Debt (KD) for BBC is 11.5% with semiannual payments. Compounding it gives an annual rate of KD = (1+11.5%/2)2 = 11.83%....

Other Papers Like Bosten Beer Case Study

Sabmiller Case Study Solution

808 words - 4 pages Africa, Asia, Australia, Europe, North America and South America. SABMiller now faces an important decision. Where to go from here? CASE STUDY ANALYSIS CASE STUDY – SABMiller Porter’s 5 Forces – Beer Industry Substitutes Very high - there are a lot of options in the market for alcoholic beverages such as: -Cider -Wine Supplier Power Low -“The Group was already large enough to use purchasing power to force down ingredient prices

Mountain Man Brewing Company Case Study

3383 words - 14 pages name recognition. A recent study showed that Mountain Man Lager was considered by many to be West Virginia’s best known beer. In addition, it has very strong brand position with consumers favoring MM Lager’s unique taste and quality ingredients from the family recipe. Finally, MMBC has a trained sales force that is very adept and getting its product into the right channels to compete with national breweries. The legacy of the company is its

Global Forces and the Western European Brewing Industry

1261 words - 6 pages identified. It was found that there were three key factors for this case study; political, economical and socio-cultural. These factors were all interlinked and influenced each other. The declination of beer consumption affected these three areas the most and resulted in a number of continuous implications for the brewing industry. The three example companies all had rather different focusing outlooks about their company and the direction where they were

Assignment 1

764 words - 4 pages processes of categorization, homogenization, and differentiation to explain why these hostilities might exist. Remember to provide supporting case study examples that highlight the three processes. Part B Read Case Study 4.1: Conestoga-Rovers and Associates on page 116 of the textbook and answer the three discussion questions below. In your answers, you should incorporate concepts or theories from Lessons 1, 2, 3, and 4 where applicable. Avoid

Quant Analysis

1054 words - 5 pages , Distribution, and Capacity Expansion at a Beer Manufacturer A Case Study of Location, Distribution, and Capacity Expansion Decisions at Anadolu Efes Case Description and Objectives This case study involves the application of linear programming and integer linear programming methods in solving a distribution and capacity planning problem at Anadolu Efes Beverage Group. Faced with intense competition and anticipated increase in beer demand

New Belgium Brewing Case

1214 words - 5 pages stewardship: minimizing resource consumption, maximizing energy efficiency and recycling. Since employees are a reason for NBB success, employees are granted many benefits. Such as free catered lunch every month, after a year with the company are given a cruiser bike it that it allow to cut down on pollution. After 5 years earning an all expense paid trip to Belgium to “study beer culture.” (p.359) On top of all the perks that employees at New Belgium

Aspects of Contract and Negligence for Business

527 words - 3 pages INTRODUCTION In reality, negligence simply means carelessness to do something unintentionally to cause damages to others says, negligent driving, mistakenly manufacturing left decomposed snail in beer, insufficiently unrestrained dogs causing injuries. Normally, the tortfeasors in negligence are sought for compensations rather than imprisonment. This study focuses on figuring out the harmonies and dissimilarities of liability in tort and

Business Problem And Recommended Solution

2837 words - 12 pages sales of $1.386 million to prevent shutdown ($317,397 fixed operating costs/0.229 margin, Research Study F). In quantity, based on the 3 to 1 beer to keg ratio, he must sell 4,288 kegs and 354,479 six-packs (worst case % change in net sales/net sales*respective units). This analysis supports the recommendation that Larry go forward with his investment in the Coors distributorship. Additionally, we considered the challenges Larry may face in first

Cerveceria

2968 words - 12 pages of the Cuauhtémoc Brewery they had clear that it should gradually reduce dependence on employees well as foreign supplies. In this sense, the first step taken turn of the century was the sending children overseas owners to learn the process of beer production. Such was the case of Luis Sada (son of Francisco G. Sada, one of the founders) who was sent to Chicago to study brewing and manufacturing techniques who return in 1906 and his job was

System Dynamics and Feedback Loop

1270 words - 6 pages comprises system elements, interfaces between elements, and an external system boundary. Environment plays an important role in the supply chain management as a distribution systems with all the other factors, such as system elements, interactions, interfaces, functions, processes, functional architecture and physical architecture. The beer consumer market is the very environment in this case. Beer is a seasonal demand which rises in the hot season

Corona Beer

2482 words - 10 pages problems and issues does the company’s top management need to address? Which ones are top priorities? Which are low priorities? According to the analysis of the case study, company’s top management need to address the following issue. First, “no plant existing outside of Mexico” (low priority), as Modelo aimed to maintain its international growth. Constructing plant in its strategic area would benefit the firm in many ways such as, cost reduction

Related Essays

Craft Beer Essay

1825 words - 8 pages 44,000 jobs (Jones n.p.). According to a study conducted by the Leeds School of Business at the University of Colorado Boulder for the Colorado Brewers Guild shows that craft beer juggernaut isn’t showing any signs of slowing down. The survey identified 232 craft breweries in the state as of November 2013, which includes manufacturing breweries and brewpubs. The number of breweries in Colorado has grown 109% since the recession ended in 2009, the

Mountain Man Case Study

1357 words - 6 pages objective of Mountain Man in this case study is to increase sales revenue by moving into the light beer market. Chris Prangel, son of the company’s owner, hoped to achieve three goals in his marketing campaign: 1.) To produce a light beer in the hope of attracting younger drinkers to the brand; 2.) To sustain the core brand equity of Mountain Man Lager; 3.) To maintain a steady share of its market segment by regaining the 2% annual loss

Foreign Market Entry And Diversification Essay

1177 words - 5 pages strategic advantage in both expanding their products offerings and entering a new market. For example, Modelo could acquire a small company like Foster’s or some of the local, independent beer manufactures in some of emerging global markets. Merging with Anheuser-Busch InBev would give them a strategic advantage but it would allow Modelo to compete on a more global level. Should Modelo diversify its business After reading this case study and

Organizational Behavior Essay

570 words - 3 pages warned employees that they could be fired if they don't wear the safety gear, but this has had little effect. Describe an A-B-C analysis for this situation and provide two types of behaviour modification interventions that might change employee behaviour in this situation. Page 1 of 2 Part B Read Case Study 4.1: Conestoga-Rovers and Associates on pages 97 and 98 of the textbook and answer the three discussion questions that follow it. Your answer for this case study should not exceed 600 to 800 words in length and should incorporate, where appropriate, content from Lessons 1, 2, 3, and 4. Page 2 of 2