The Brown-Forman Distillers Corporation Case, writing homework help

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its a group project. my part is risk & return analysis and conclusion

write:

1. risk & return analysis (2 pages)

2. a conclusion (2 pages)

attached is what the other members has done so far. its due in 2 hours

it's not a research paper, so no citation. it should be our work



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The Brown-Forman Distillers Corporation Case MACRO-ENVIRONMENT: The time when Brown Forman case introduced was 1978. Economic activity in 1978 was weakened. In the developing countries, the trends towards lower rates of growth in output was observed since 1975 was noticeable. The slowdown in developing countries was due to sluggish export earnings. The developed countries economy continue to battle with the problem of insufficient recovery in productive investments and the policy dilemma posed by high inflation and slow down. In the centrally planned economies growth was restrained by the external imbalances and international slowdowns in industries, especially in transport and energy sectors. The political environment include Iranian revolution, which would led to the oil shock crisis in 1979. Domestic Environment : The domestic environment in this case is the United States. The Problem In this case,Lyon’s Brown Jr. is the president and CEO of Brown-Forman Distillers Corporation. Brown has been presented with a difficult acquisition decision. Owners of Southern Comfort Corporation have approached Brown with an offer to sell their company for $94.6 million. This is an extremely important decision, because Southern Comfort is a producer of a unique liqueur, which could be a very valuable asset. Brown just needs to analyze the potential acquisition using cash flow operations. If this acquisition has a positive hurdle rate and meets the company’s requirement goals, then Brown should acquire Southern Comfort. Alternatives: We will use the discounted cash flow to valuate the company of Southern Comfort Corporation. We are taking the DCF method because it values the company using the net present value (NPV) of its future cash flows using the discounting rate. There are many stages in the DCF valuation method. We will first predict the future cash flows of all ten years in this case 1978 to 1988. We will calculate the discounted rate; the weighted average of cost of capital also known as WACC in order to determine the NPVs. The terminal value (TV) needs to be determine as well. The terminal value is extremely important because it presents all of future cash flows that accumulated after the covered time. Lastly, the NPVs are added to the terminal value. WACC The discounted rate requires knowledge of the current market conditions. The rate that is used to discount the future cash flows is our weighted average cost of capital (WACC). WACC is one of the most important factors in the DCF. The reason for this any small changes in our WACC can cause big changes is our DCF valuation in the firm value. We will calculate WACC by weighing factors of capital by taking a look at the firm's finances and multiplying it with the cost. Below is the equation we will use: π‘Šπ΄πΆπΆ = πΈπ‘žπ‘’π‘–π‘‘π‘¦ 𝐷𝑒𝑏𝑑 + πΈπ‘žπ‘’π‘–π‘‘π‘¦ βˆ— πΆπ‘œπ‘ π‘‘ π‘œπ‘“ πΈπ‘žπ‘’π‘–π‘‘π‘¦ + 𝐷𝑒𝑏𝑑 𝐷𝑒𝑏𝑑 + πΈπ‘žπ‘’π‘–π‘‘π‘¦ βˆ— πΆπ‘œπ‘ π‘‘ π‘œπ‘“ 𝐷𝑒𝑏t We will first calculate the cost of equity using the capital asset pricing model (CAPM). The CAPM helps us find out the return needed for the bearing the risk of holding a company's share. The required return is the return on equity (ROE) that investors demand to bear the risk of holding the company’s share, which equals the company’s cost of equity. The following equation is the cost of equity: 𝐢𝑂𝐸 = π‘Ÿπ‘“ + 𝛽 π‘Ÿπ‘š βˆ’ π‘Ÿπ‘“ . We will then calculate the cost of debt which is the interest rate that the firm has to pay for its outstanding debt. It is important to understand that the cost of debt (COD) can be the most influencing factor due to its credit rating. The following equation is for cost of debt: 𝐢𝑂𝐷 = 𝑖 βˆ— (1 βˆ’ 𝑑). Once we plug in all formulas we are able to calculate the full WACC formula. Once we calculated the WACC, we need to determine the terminal value which is the NPV of all future cash flows. We will predict the terminal value based on the goal of average growth. The reason for using the terminal value is because of the assumption of constant growth. In this case using the growth rate and WACC we can determine the terminal value of the company. As soon as we calculate the NPV of the cash flow and the terminal value of the specific period we can discount the terminal value to the NPV. Both NPVs must be added in order to get the equity value. GATHERING INFORMATION ON ALTERNATIVE RISK & RETURNS CONCLUSION We believe the DCF analysis was the best method to analyze what assumptions and conditions have to be fulfilled in order to reach a certain company value. The company valuation using discounted cash flows seems the most reasonable to determining the company's value. The DCF consist more than one formula meaning a combination of other methods which helped us get a more realistic range of the company values.
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Here you go. I don't see the data from the formulas, so you will need to go in and choose the best answer from the bold in the last part of the conclusion so that it'strue and consistent with the rest of the data you provided.If you have questions let me know.I will do my best to answer them.Thanks for letting me help you with this assignment.Please consider me in the future.Please pay if you are satisfied (tips are okay too ;) )Have a blessed day.

Risks:
Potential:
There are many risks involved with buying this company. Many things that the CEO of
the Brown-Forman Distillers...


Anonymous
Excellent resource! Really helped me get the gist of things.

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