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SUN Brewing (B) Case Solution & Answer

SUN Brewing (B) Case Solution 

The selling and administration expense would tend to increase by 22% of sales because of market expansion and the efforts to manage the products for the people within a country. Therefore, according to the expected results, net income would tend to increase over the years due to the increase in demand for beer and related products in Russia.

Projected balance sheet

According to expected results, the total assets would be greater than the total sales volume due to the high manufacturing process used to develop the finished products and the increasing level of supply within an economy. However, the current assets would be only 26% of the total assets and show the less liquidity problems for future due to the non-fixed in nature.

The working capital would tend to be negative over the number of selected years because of the huge debt figures that would allow expansion of business operations under less equity value. However the net results shows that it would maintain the position of high debt figure in the future.

 FCF Valuation

In order to analyze the value of the company in the given period, the FCF valuation method will apply to determine the true value of an entity. From the following analysis, it has been identified that due to a high debt figure, the total value of Sun Interbrew would be considered lesser than the expected value analyzed by various market analysts. Therefore with the assumed weighted average cost of capital of 12%, the total net present value of the company would be only $546 million by the end of 2004.

After looking at the projected value after 2004, it has been determined that the total net present value would approximately increase by 30%, which is not good for maintaining the position in the future. Therefore, the only way to increase the worth of an entity would be to reduce the level of debt figure and to increase the level of capital needs through raising the funds and to take investments from different shareholders.

Value of share

As the case illustrates the importance of voting power within a company, therefore in order to assess the percentage value of class A (Non-Voting) and class B (Voting). A critical assessment process has been applied in order to analyze the difference between these two classes of shares. In 2004, the total shares value was 451.1 million, which consisted of class A and class B shares. From the results, Class A held 76% of the shares while Class B held the rest during the selected period.

After analyzing total shares, it is concluded that class A’s share value is greater than the class B due to cheaper shares price and was considered to be a non-voting power share where the shareholders only receive the dividends instead of involvement in the operational decisions of the company. Therefore, the average total shares value of Sun Interbrew should be 3.87 in the current year.

Voting premium

The date is collected from the historical share performance of Sun Interbrew, to distinguish the difference between voting rights shares and non-voting rights shares through voting premiums analysis. It is also to determine the expected impact of the changes in these two shares from 2005 to 2008.

In the past performance of the company, it has been analyzed that almost 60-70% of share power represented by class B belonged to Khemka family due to the involvement in the company’s operational activities and so therefore, the company reflected the family dominance.

On the other hand, the projected results show that the margin of class B would decrease in future due to the withdrawal of shares or exit from the company by Khemka family because of fewer shares within the operations as compared to Interbrew and Alpha group. Therefore, an increase in non-voting shareholders is expected, who only invest for return of dividend instead of involving in the operations of the business……………..

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