High level finance questions

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Business Finance

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I have a Final group Examination, where I should answer 2 questions regarding an article, ( I uploaded the article with the instructions for the examination). Please answer ONLY 2 out of the 5 questions available in the PDF file, after reading the whole article.

Also I will upload my group progress in the case, take a look at it to see how the work should be.

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Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Scanned with CamScanner Brown-Forman Distillers Corporation Final Case Study Group 1 Background In 1870, a pharmaceutical salesman named George Garvin Brown found the company Brown-Forman Distillers Corporation. He proposed the idea of selling high-class whiskey in sealed glass bottles, thus creating the company. The Brown Forman Corporation was specificialzed in the spirit and winery business by manufacturing the following well-known brands: Jack Daniel’s, Early Times, Old Forester, and Canadian Mist. Brown-Forman also owned Southern Comfort and Tuaca before both liqueur brands were sold off by the company in 2016. Within the same year, the company acknowledged almost $3 billion in sales. Descendents of Brown’s family also controlled more than 70 percent of the voting shares and were known to have a net worth of almost $12 billion. Brown-Forman: Financial Goals and Performance In 1977, management of Brown-Forman proposed a list of long-term financial goals to follow. Each one of the goals are listed as below and had a common goal of “increasing value of stockholders’ investment”: 1. Target hurdle rates projected at 14 percent 2. Size of the capital budget through 1980 3. Target capital structure 4. Target dividend ratio between 30 and 35 percent In addition to these financial goals, the company had also proposed an investment plan which would include $86 million for advertising and promotion, $39 million in barreled whiskey inventory, and $19 million in new plant and equipment for the 1978-1980 period. In 1978, the financial performance of Brown-Forman Distillers was compared to its larger competitors (e.g. American Distilling, National Distillers, Seagram, Hiram Walker) as shown by Exhibit 1 displayed below: As seen in the exhibit above, Brown-Forman exceeded in tis growth and expected sales growth compared to its competitors. The increase in company growth by Value Line who considered Brown-Forman as the “premier liquor company in the United States” with brands continuing to grow despite a flat growth in the industry trend. Within the same year, Brown-Forman was expected to have a earnings per share of $2.45 with another expected 15 percent increase a year later. In terms of company stock, Brown-Forman considered two types of stock which are both publicly traded in the New York Stock Exchange: Class A having voting rights and Class B having no voting rights with no listing at all. Descendants of the Brown Family held most of the Class A type stock (74 percent) which is also the reason this stock type was thinly traded with some senior directors and officers owning a small portion of this stock type as well. Acquisition Decision In July 1978, Brown-Forman Corporation was confronted by the owners of Southern Comfort Corporation to be purchased at $94.6 million as its asking price. Therefore, the need to evaluate the asking price and effects on the acquisition of the share share price felt appropriate among the company. The question also loomed in the the minds of Brown’s management of whether to accept or reject the deal of Southern Comfort. In breaking down the asking price of $94.6 million, $55 million covers the company’s intangible assets, $12.2 million is for property, plant, and equipment, and $27.4 million for the current assets. With the acquisition, it is only appealing if the potential cash flow from operations is strong. Using the Capital Asset Pricing Model (CAPM) to analyze the value of the future cash flows. The company’s hurdle rate is 14 percent
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High-Level Finance Question

Part 1

What are the various approaches available for valuing southern comfort corporation?

Free Cash Flow Analysis

Free cash flow analysis is a typical valuation method used to assess the financial
performance of an organization. The free cash flow approach represents the cash that the
company generates in a certain period. Notably, the generated cash breakdown includes all
capital expenditures such as working equipment, houses and properties among other
expenditures. Additionally, the cash used to expand the productivity, pay dividends, pay debts,
or develop new products is also evaluated by the free cash flow approach. In other words, the
approach prov...


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