BUS 5440 - The Boston Beer Company OCSProject - Running...

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Running head: THE BOSTON BEER COMPANY OCS PROJECT1The Boston Beer Company OCS ProjectStephen ConnerBUS5440: Financial ManagementProfessor Ana MachucaDecember 11, 2016
THE BOSTON BEER COMPANY OCS PROJECT2Table of ContentsIntroduction/Background.................................................................................................................3Existing Capital Structure Vs Optimal Capital Structure................................................................4Hamada Equation Results............................................................................................................4OCS Next Steps...............................................................................................................................5Assumptions....................................................................................................................................7Appendix – Relevant Data...............................................................................................................8References......................................................................................................................................11
THE BOSTON BEER COMPANY OCS PROJECT3Introduction/BackgroundThis week’s assignment was to extend the work that we did in determining the Weighted Average Cost of Capital (WACC) for a target corporation that was selected at the beginning of the semester. The company that I selected was the Boston Beer Company out of Boston, Massachusetts. Through my investigation, I determined that The Boston Beer Company (NYSE:SAM) relied heavily on equity and free cash flow (FCF) to fund the operations of the business. This decision was based on the founder’s desire to ensure that Boston Beer could cover all of its operating expenses and to keep leverage extremely low.This week, the goal is to see if the current capital structure is optimal, or are there other paths that could ultimately increase the overall value of Boston Beer for its shareholders. Currently, Boston Beer’s outstanding equity is worth approximately $2,195B and Boston Beer has a total debt load, in the form of capital leases, of a mere $417,000. Based on the information that was covered in the WACC project, it was determined that Boston Beer currently has an unlevered beta of 0.66 and a standing WACC of 5.92%.To determine the Optimal Capital Structure (OCS), the financial analyst needs to use what if scenarios based on the current structures and see what impacts varying levels of debt willhave on both the company WACC and ultimately Earnings Per Share (EPS) which is key measurement in determining shareholder value. For the purposes of this analysis, the study startswith a debt rate, assuming that Boston Beer, will continue to finance through leases and a combinations of bonds starting at 4.25%, their current lease rate and just slightly above the risk free rate used in the WACC calculation.
THE BOSTON BEER COMPANY OCS PROJECT4Existing Capital Structure Vs Optimal Capital StructureAs stated above, The Boston Beer Company, today, uses a capital structure that is basically 100% equity bases. The founder of the company is a big proponent of not leverage the company and believes that being able to handle the operations of the company through revenue, FCF, and equity, that Boston Beer will be able to provide maximum value to its shareholders. In

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