Bayern Brauerei Case Solution
Introduction:
Bayern Brauerei is a twelfth age family claimed German organization headquartered in Munich. It spent significant time in assembling and circulation of alcoholic beverages, and beer. The company has two winning items, which are dark and light mix. Because of a few components the organization is considering extending its items into another business sector division made from the breakdown of the Berlin divider. The company lately acquired new equipment because of the fire which destroyed their past hardware ad equipment. The new equipment has expanded their creation ability making this new extension promising.
Its benchmark capacity production is 700,000 and in 1992 the company had 667,000 hectoliters production to meet the demand of the customers. As per this case, the company had 211 customers, five distributorships and well settled warehouse. In 1990, Max Leiter, sales and marketing manager shifted to German Munich in order to revive the company’s sales as the company wanted to penetrate the market by increasing the sales as well as the customers simultaneously. Max Leiter adopted unique distribution strategy in order to grow the company successfully.
Another new executive named Maria Ober must get ready to vote on these three issues before the top decision-making staff on the next day:
(1) Validation of the Financial Budget for 1993,
(2) Quarterly dividend declaration, and
(3) Incentive remuneration plan for the marketing supervisors.
The objective of this case is to evaluate the past performance of the company by considering its actual statements and forecasted data that assess the credit an inventory terms for the company. Along with this, the objective is also to apply the tools and financial concepts in analyzing the data and comparing the profits earned by the company and dividends paid.
Case Overview:
In western Germany the company had growth of 81% of sales and it wanted to expand its operations to East Germanyas well as it needed around 8.8 million DEM in the year 1993 for the investment in the new plant and equipment. Furthermore, Leiter argued that the company only required DEM 8.6 million for distribution and warehouse in the year 1994. He further elaborated that the company would not have successful expansion without these major investments.
Problem Statement:
The company has declining profit margins due to negative returns from accounts payable and accounts receivables. It is considered that the new market might not be creditworthy as of current market because the eastern retailers and distributors lacked collateral in securing the bank loan.
On the other hand, it has been analyzed that the company’s capital and debt are increasing, and this is why the company faces the issue of lack of repayment due to negative cash flows as well as the company might face liquidity problem. As a result, the company would have to make decision of paying low dividends to its shareholders.
Along with this, it has been observed that the forecasted 10 year financial cash flows and terminal worth utilizing just Eastern Lander deals as a part of an anticipated growth of sales to be gathered minus variable expenses subsequent to settled will be paid in any case. Tax was given and NPV was identified including and excluding investments in east lander along with depreciation of 25 years for PP&E and 40 for warehouse.
Terminal quality was determined by using the built up WACC and the sales growth to be collected. WACC was computed utilizing the development strategy comprising of the risk free rate, the arrival on obligation and a 2% inflation rate. Moreover, betawas impractical to compute.
Change in Net Working capital was computed as a rate of aggregate resources identified with the 19% of sales in Eastern Lander and expanded at anticipated sales growth......................
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