BAFI517 Financial Management
Please prepare a report based on the case entitled “InBev and Anheuser-Busch.” Please post your Excel sheet and analysis report on Canvas by 1:30pm, Dec.2. However, if you are presenting your case on Dec.2, the deadline for this homework will be extended to 5pm, Mon., Dec.4.
Your report should at least address the following questions:
1. What is the intrinsic value? Why is it so important? How is it estimated in business valuation?
2. What is WACC? Why is it so important in business valuation? Please estimate WACC for Anheuser in 2008 using the Excel template attached. In your estimation of cost of equity, use either CAPM or Dividend Discount Model but make sure to justify your model selection.
3. Assess InBev’s bids for Anheuser in 2008 based on discounted cash flow valuation model. How do they compare with the firm’s intrinsic value?
a. Complete the attached Excel sheet by projecting free cash flows, with the terminal date at the end. What should determine the “terminal date,” i.e., when you stop forecasting annual cash flows and estimate a terminal value? Do you think 2012 is the appropriate “terminal date” for Anheuser-Busch given its circumstances at the end of 2007? Why?
b. Could you recommend an appropriate growth-rate assumption for Anheuser-Busch in the estimation of its terminal value? Justify your growth-rate assumption and estimate Anheuser’s terminal value.
c. What is your best estimate (or the range of your estimates) of Anheuser-Busch’s intrinsic value?
d. Should InBev’s shareholders endorse the acquisition of Anheuser at $70 per share?
A suggested outline for the report is as follows: (1) An executive summary that includes your recommendation; (2) A statement of the issue(s) the financial managers face; (3) A presentation and discussion of your Excel findings; (4) Your analysis; (5) Concluding remarks.
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