Boston Beer Company
Case Study (3)
Avnit Bambah & Shrey Raturi
Jim Koch, President and founder of Boston Beer Company, had filed a registration with the SEC for an IPO that aimed to raise between $26 million and $34 million. The Boston Beer Company is leader in craft beer industry with market domination in the craft beer segment and perfect marketing team. The two previous IPO by competitors were very successful and stock value increasing by forty percentage by the end of the trading day. The company banker has priced the stock between $10 and $15. Koch thought was the stock price should present the correct market value.
(1) What is Boston Beer’s strategy? What are the sources of its…show more content…
2. Over-valuation of acquired assets:
The fixed assets, particularly goodwill, might have been bought at a much higher cost than warranted by the services to be rendered.
3. Fall in value of fixed assets:
Fixed assets might have been acquired at a time when prices were high and now the prices have corrected substantially. But in the balance sheet the assets are yet shown at their book value less depreciation written off.
4. Inadequate depreciation provision:
If proper and adequate depreciation has not been provided on the fixed assets the result would be more profits in the Profit & Loss Account. This book profit might have been distributed as dividend and leaving no funds with which to replace the assets at the right time.
(5) How much would you be willing to pay for a share of Boston Beer if you think that the growth rate from 1996-1999 will be 30%, declining to 5% in perpetuity thereafter?
Outline all your assumptions in valuing the stock. Assume a discount rate of 10%.
Price of growth stock for 3 years from 1996 to 1999 at 30 %
Assuming a straight line growth rate PR = [( V present – V past ) / V past ] * 100
Price of stock on 1/1/1996 = 23.00
0.3 = x – 23 / 23
X = 29.9
Price of a perpetuity is D/ R
Where D is Divident or coupon
R is discount rate ( 10%)
(6) Briefly summarize your opinion on the short-term and long-term current outlook for America’s brewing industry, especially with respect to its international