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aquarius ales - Heather Kelly April 2 2008 BMGT440 Spring...

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Heather Kelly BMGT440 April 2, 2008 Spring 2008 Aquarius Ales 1. An appropriate discount rate to value Aquarius Ales is 5.73. a. WACC= (33.3/100 x 4.2%) + (66.6/100 x 6.45%) i. After tax cost of debt= 4.2% 1. 2701/47,497 = pretax cost of debt = 6% 2. 6% x (1-0.30) = after tax cost of debt = 4.2% ii. Debt/Equity Ratios 1. Found by computing debt/equity ratios of each of past 3 years, averaging results to get D/E= 33.3/66.6 a. 2004 D/E = 35,993/69,674 = 34/66 b. 2005 D/E = 36,834/79,909 = 32/68 c. 2006 D/E = 47,497/91,718 = 34/66 iii. Cost of Equity found using CAPM equation + - Rf βRm Rf 1. 4.6 + 0.74(7.1− 4.6) = 6.45 a. 4.6: given b. 0.74: average of comparables betas c. 7.1: given 2. Aquarius Ales selling price determination a. Common Size Income Statement, Balance Sheet, and Income Statement
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Sales 100.0% 100.0% 100.0% 100.0% Cost of Goods Sold 35.0% 36.3% 33.9% 35.1% Vending Revenues 0.6% 0.5% 0.4% 0.5% Gross Profit 65.6% 64.2% 66.5% 65.4% Selling, general & administrative expense 39.1% 39.1% 37.9% 38.7% Depreciation expense 0.5% 0.4% 0.4% 0.4% Earnings before interest and taxes 26.0% 24.7% 28.1% 26.3% Interest expense 1.5% 1.1% 1.3% 1.3% Profit before taxes 24.4% 23.6% 26.8% 25.0% Taxes ( 30%) 7.3% 7.1% 8.0% 7.5% Net Income 17.1% 16.5% 18.8% 17.5% i. Common Size Income Statement ii. Balance Sheet and Income Statement
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AQUARIUS ALES INCOME STATEMENT Pro Forma Sales , 200 000 $ Cost of Goods Sold , 68 000 Vending Revenues 775 Gross Profit , 132 775 Selling, general & administrative ex , 76 000 Depreciation expense 850 Earnings before interest and taxes , 55 925 Interest expense , 2 000 Profit before taxes , 53 925 Taxes ( %) 30 , 16 178
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