Ipo Pricing For Bbc Essay

4358 words - 18 pages

IPO Pricing for Boston Beer Company Inc.


Case Summary

We address the following key questions regarding Boston Beer Company (BBC) to explore the issues surrounding its Initial Public Offering. First of all, we determine the fair value of BBC to be $211 million based on a DCF valuation of projected future cash flows and explain our key assumptions and potential problems arising from those assumptions. Second, we find BBC’s fair value to be $314 million by relative valuation and discuss how differences in operating strategies might translate into differences in financial ratios. Third, we determine BBC’s IPO price to be $15 per share. Finally, we look at the craft brewer industry as ...view middle of the document...

The growth rates in net sales for the next ten years (including 1995) are therefore projected as: 45%, 41%, 37%, 33%, 29%, 25%, 21%, 17%, 13% and 9%. After ten years, the growth rate will remain steady at around 5%, which is the sum of real GDP growth rate at that time (2.5%) and the inflation rate of 2.8%.[1]
In the past five years, cost of goods sold as a percentage of net sales has been quite steady. We used an average rate of 44.7%. Gross profit is then estimated as 55.3% of net sales.
We believe it is also reasonable to assume that advertising, promotional and selling expenses are proportional to net sales since BBC has been adopting an intensive sales and marketing strategy to build up its market. The same linear variable assumption applies to general and administrative expenses because the company will have to continuously recruit employees and increase management efforts to sustain the sales growth. Therefore, we combine those expenses into one category -- total operating expense. Although individual expenses may vary in different years, the overall operating expense rate tends to be steady over years. In the last three years, on average, total operating expenses accounted for 48.1% of net sales. Other income/expense (net) is insignificant in size (less than 0.1%) and therefore left out in our financial projection.
Although the company as a partnership was not subject to income taxes, it will be taxed after public offering. We believe pro forma income is a more precise measure of value in a forward-looking perspective. For the past five years, the pro forma tax rate for the company is 42% on average. 
Free Cash Flows were calculated as FCF=EBIT*(1-Tax) +Depreciation/Amortization - Increase in Working Capital - Capital Expenditures.
Depreciation and Amortization cost is assumed to be a variable cost proportional to net sales. The average depreciation and amortization cost is 0.7% of net sales from 1992 to 1994. Capital expenditures includes the  replacement and addition to capital assets and should be proportional to depreciation and amortization cost. Using data from the past three years, capital expenditures are estimated as 230% of Depreciation and Amortization, or 1.61% of net sales. Change in Working Capital can vary significantly over years in the case of BBC and is estimated by the weighted average rate of change from Dec 1992 to Sept 1995, which comes out to 0.57% of net sales.
With all the free cash flow for the next ten years in place, discount factors are needed in order to calculate present value. BBC’s weighted average cost of capital is used as the discount factor and is calculated as KWACC = (Equity/Value) × KE + (Debt/Value) × KD× (1-Tax)
We assume that the book value of debt equals the market value of debt. As of Sept 30, 1995, short and long term debt totaled $1,950 thousand. Cost of Debt (KD) for BBC is 11.5% with semiannual payments. Compounding it gives an annual rate of KD = (1+11.5%/2)2 =...

Other assignments on Ipo Pricing For Bbc

Eskimo Pie Essay

1733 words - 7 pages growth had slowed significantly and the industry started to be highly fragmented, with over 400 brands representing sales of $1.3 billion. Firm Specifics In order to construct a clear image of the company right before the IPO one should analyse its financial ratios that reflect the performance, activity, financing and liquidity. Since the selling proposal was in 1991, the ratios are computed for the previous year and compared with those

Pricing Essay

6384 words - 26 pages wireless and information technology, even our cars could … call for bids whenever the fuel tank runs low, displaying a list of results from nearby gas stations right on the dashboard.”1 It sounds far-fetched. But dynamic pricing — where prices respond to supply and demand pressures in real time or near-real time — is making inroads in many different sectors, including apparel, automobiles, consumer electronics, personal services (such as

Bank Processes

1151 words - 5 pages identified for effective and productive investment banking processes. Choosing an investment bank or firm can depend on the investor themselves. Some processes and guidelines can vary from firm to firm, this would all depend on the investor and the financial experts and their preferences. Portfolio construction is an important task which involved expertise from a financial expert. Investment Banking and IPO Process Investment banking contains

Afm Case8

3088 words - 13 pages funds to finance the expenses since start-up. * Historical funding decisions Before IPO, PCYC managed to finance the company with the help of its own money and outside investors, mainly venture capitalists, in the form of convertible preferred stock. For PCYC, venture capitalists were easy and large sources of fund when it was still in the start-up phase, compared with the tough regulations at IPO and covenants in issuing debt. As return

Dlf Strategic Analysis

2244 words - 9 pages company's US$ 2 billion IPO in July, 2007 was India's biggest IPO in history. In its first quarter results for the period ending 30 June 2007, the company reported a turnover of Rs. 3,120.98 Crore and profits after taxes of Rs. 1,515.48 Crore. VISION MISSION AND VALUES DLF Vision To contribute significantly to building the new India and become the world’s most valuable real estate company. DLF Mission To build world-class real-estate concepts

Managerial Finance

1382 words - 6 pages but harder to raise capital than corporation. Corporation is the only legal entity that is separated from owners and managers. Even though it is complicated to form a corporation, and corporation is subject to double taxation, but its advantage of unlimited life, limited liability and most importantly the ability to transfer ownership makes it the ideal organizational form for fast growing companies. (c) Initial Public Offering (IPO

Corporate Finance

4966 words - 20 pages Case: Electronic Timing, Inc. | 614 | PART V: Long-Term Financing 20 Issuing Securities to the Public 616 20.1 | The Public Issue | 616 | | The Basic Procedure for a New Issue | 616 | 20.2 | Alternative Issue Methods | 617 | 20.3 | The Cash Offer | 619 | | Investment Banks | 622 | | The Offering Price | 623 | | Underpricing: A Possible Explanation | 624 | 20.4 | What CFOs Say about the IPO Process | 627 | 20.5 | The

Stock Market Bangladesh

2424 words - 10 pages STOCK MARKET CRASH OF BANGLADESH IN 2010-11 History of the stock market crashes show that ‘Bull Run’ before a stock market crash is kind of normal phenomenon. There was no exception for the stock market crash of Bangladesh in 2010-11. Most important factors that guided to the Bull Run are described here. Root of bubble Due to political conflict of Bangladesh state of emergency was declared and military took power of the country in 2007. Moreover


2514 words - 11 pages company will be subjected to the ‘Transfer pricing regulations’ (Grocott, 2009) and this is something in which the context company should consider. Grocott (2009) provides further information that new market entrants looking to invest in the Indian soft drinks industry should take extra caution while complying with the regulations. Recently, the government has adopted liberalized policies for the soft drinks trade to help give the industry a

Marketing Plan Of Bubble Tea

2527 words - 11 pages * Mixed with sweetened milk * Adding tapioca pearls * Bubble tea is served chilled or hot * With an oversize straw to sip up the tapioca pearls Augmented Product * Provide a seating area for customer to relax and talk * Books, magazines for customers * Wi-Fi available in the bubble tea shop * Cheerful, enthusiastic service that makes consumers to feel right at home. 5.4 Pricing strategy In the UK, on average

Coach Case Study

3864 words - 16 pages luxury brand`` for it was understood that price was a source of competitive advantage for the brand in the luxury market. In October 2000, Coach went public under the name of Coach Inc. By 2005Coach`s revenues tripled and their share price increased more than 900 % since their IPO in 2000.   The Organization Today: Coach is one of the most recognized fine accessories brands in the U.S. and in targeted international markets. Coach is a leading

Similar Documents

Jetblue Essay

1178 words - 5 pages is suit for the first publish. In this case, there are three different share valuation methods: P/E multiple (comparison pricing); EBIT multiple (comparison pricing) and discounted free cash flow (fundamental pricing). Analysis the advantage and disadvantage of the IPO JetBlue has been successful to duplicate Southwest’s strategy which provides high aircraft utilization and low fare. The cost of per available-seat-mile is the lowest of the

Ipo For Management Essay

1063 words - 5 pages 30-31 Reg30-31 deals with pricing and price band:         SEBI allows free pricing of equity shares in an IPO Approval of RBI might be required for public issues by banks Issuer may mention floor price or price band in RHP OR Issuer may announce floor price or price band at least 2 working days before bid opening in IPO and at least 1 day before bid opening in FPO in newspapers Cap on the price

Jetblue Case Study

1448 words - 6 pages for the first time via security exchange, it is Initial public offering (IPO). Before IPO, there is no general shareholders in the company. After IPO, the company goes to public with general shareholders and it is subject to regulations by the Securities and Exchange Commission. Going public can bring some advantages to JetBlue. 1> Going public can generate capital for the JetBlue. Besides the support from venture-capital, stock could be

Week 5 Questions 1 2 Essay

518 words - 3 pages Week Acquiring another organization in the same industry may be the easiest of options. The strengths and weaknesses of each company get displayed for the new owners to view and grow as a greater power in the market. The get other channels of distribution and as a larger distributor they have more power with suppliers and pricing bargaining. They are able to keep smaller companies out of their marketing areas as they have a larger economic scale