Sun Brewing Analysis
Sun Interbrew (found in Exhibits 1 and 2, respectively) were used as a base for calculations.
The assumptions necessary to evaluate the company are detailed in Exhibit 3 and are stated below for simplicity. The revenue growth was assumed to be 14.7% and the discount rate and expense growth rate to be 12% and 0% …show more content…
The terminal value is used in discounted cash flow analysis to indicate a sale of asset and help identity the risk and reward of the investment. To calculate the Enterprise Value, we subtracted the growth rate from the discount rate (12% and 0%, respectively) and then divided the FY 2010 free cash flow by this value. Next the free cash flow generated for each year was discounted and added together to generate the Enterprise Value. However we felt it was necessary to explore multiple scenarios that would provide a range of possible outcomes. rd
First, we assumed a lower discount rate of 8% which is 1/3 less than the estimated discount rate of 12%. These values can be found in Exhibit 5. This more favorable rate generates an enterprise value of close to $5 billion which is a 63% higher valuation that the estimated 12% enterprise value. However, if volatility moves the discount rate higher a much lower valuation would be expected. To account for this scenario, we increased the discount rate rd to 16% which is a 1/3 increase from the 12% discount rate. The modified results are shown in
Exhibit 6. This lowers the valuation of the company to roughly $2.12 billion and results in a 30% drop in enterprise valuation. Comparing these two scenarios one may deem that since a decrease in the discount rate generates a return which is more than double the percent loss if the discount rate