BAYERN BRAUEREI Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

BAYERN BRAUEREI Case Solution

Problem Statement

The computation of the net present value of the investment is very difficult to compute because of the lack of availability of information to compute the weighted average cost of capital in order to check out the feasibility analysis of the said project effectively. For the new investment project, the company would be required to pay DEM 8.8 million for plant and equipment in the year 1993 whereas in the year 1994, required DEM is 8.6 million in order establish the warehouse as well as distribution center.

Analysis of the Case

Reasons of Expansion in Eastern Lander

The vertical analysis of the historical as well as the projected income statement and the balance sheet of the company reflect that the company is increasing a significant proportion of its sales revenues from the Eastern Lander Region as compared to the Western Lander. This strongly suggests that the company must increase further and focus on expanding into that region in order to further enhance its sale revenue. It can be seen that from the 0% in the year 1989 to about 18.4% increase in the year 1992 can be seen in the sales revenues from Eastern Lander, which purely depicts the fact that the growth potential in that region is increasing. This could be converted into more revenues in the upcoming future. Moreover, the horizontal analysis reveals the fact that a growth of about 2% in the sales revenues can be seen from the Eastern Lander from the year 1989 to 1992. The credit terms in this region are also very much favorable, which can help distributors as well as the customers in generation of more revenues. Last but not the least, the well experienced as well as the proven results oriented marketing manager, Max Lieter will be running the business, which could almost guarantee the returns that could be generated from this business. Therefore, all these reasons are sufficient for the expansion plan in that region.

Retention Ratio

It can be seen that for a company in order to focus on some expansion plan, the best available alternative to fund the plan is its retained earnings for the reason that it is readily available and does not require any kind of cost associated with the equity issue or the risk associated with the debt financing. However, in the current scenario, it can be seen that the company, due to its family owned nature, it is focused on distributing about 75% of its entire net earnings in the form of dividends in order to help their old people, who are unable to meet the expansion plan easily because it approximately equals to about 25%. The only possibility of expansion could be by using either the debt financing or the equity financing.

Reliance on Debt Financing

From the detailed analysis of the historical as well as the projected balance sheet of the company, it can be seen that the company relied heavily on the debt financing, which could be very costly as well as risky for the company. In the circumstances when the company is not earning sufficient amount, then to cover the interest expense, the company would be required to sale off its personal assets to pay its obligation, which could ultimately lead towards the solvency issue. From the liquidity position of the company, it can be seen that the short-term obligations of the company are increasing significantly, which is declining the current ratios of the company for the future........................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.