Running head:THE BOSTON BEER COMPANY WACC PROJECT1 The Boston Beer Company WACC Project Stephen Conner BUS5440: Financial Management Professor Ana Machuca December 4, 2016

THE BOSTON BEER COMPANY WACC PROJECT2 Table of Contents Introduction/Background.................................................................................................................3 WACC Equations.............................................................................................................................5 Corporate Tax Rate......................................................................................................................6 Cost of Debt.................................................................................................................................6 Cost of Equity - Preferred Stock..................................................................................................7 Cost of Equity - Common Stock..................................................................................................8 Boston Beer Company Capital Structure.....................................................................................9 Boston Beer Company WACC..................................................................................................10 Assumptions...................................................................................................................................11 Appendix – Relevant Data.............................................................................................................12 References......................................................................................................................................15

THE BOSTON BEER COMPANY WACC PROJECT3 Introduction/Background The world of craft beers is a relatively recent development in the greater beer and beverage market.Looking back in history, beer came on to the world scene in 580 AD.Saint Arnold of Metz convinced the people in his community to drink beer instead of water.The primary reason for the shift was to help remedy the plague by eliminating the drinking of tainted water that was propagating the spread of the disease. Fast forward a few centuries and the world of beer expanded throughout greater Europe. The first known tavern in the United States opened in 1716, the Wayside Inn, opening the world of beer to the colonies and the future United States.As the beer industry advanced and worked its way through and past prohibition, the number of US brewers contracted.In the 1970s many of the influences that had dominated the beer landscape for over two centuries had given way to the major brewers and the tastes of the old world were slowly disappearing.By the end of the 1970’s the entire beer industry had consolidated to just 44 brewing companies.In early 1980, beer experts estimated that by the end of the 80’s there would be only 5 major brewing companies left in the United States (“History of Craft Brewing”,2016). With competition shrinking in the beer market so to was the overall variety of beer available to avid beer drinkers.In the late 1970’s, beer drinkers were largely left with homogenous lagers and pilsners such as Budweiser, Coors, and Miller.Even with competition in beer market shrinking, the desire for the quality and taste of old world beers was still alive in the United States.The desire for quality beer gave way to the craft beer movement where home brewers practiced the art of old world beer brewing in their garages in basements.The experts say that the craft beer movement officially started in 1976 when the New Albion Brewery launched in Sonoma, CA.The brewery only remained in business for a mere 6 years, but the

THE BOSTON BEER COMPANY WACC PROJECT4 move by the home micro brewer to become a full blown craft brewery gave way to literally hundreds of craft breweries throughout the country (“History of Craft Brewing”,2016). In 1984, at the very beginning of the craft beer movement, Jim Koch discovered a recipe from his great-grandfather for a traditional German lager.Following in the tradition of his European family brewers, Mr. Koch began brewing his grand-father’s recipe and pleased with