Case Study Corporate Finance Group 5 MBA PT8 2008-7
Case Study 1 Corporate Finance – Case Study Tsingtao Brewery Co. Ltd. - Local company ‘Financials’
Tsingtao Brewery - Snapshot Brief Introduction 1903 Qingdao Brewery Factory was established 1993 Tsingtao Brewery Co., Ltd. was founded and entered into capital market 2008 World famous Tsingtao Beer 28,542 Employees
Top Compensated Officers Tsingtao Brewery - Snapshot Mr. Zhi Guo JIN Vice Chairman, President and Chairman of Strategy & Investment Committee Mr. Ming Bo SUN Executive Vice President, Executive Director and Member of Strategy & Investment Committee Mr. Yu Guo SUN Vice President, General Accountant, Director, Member of Corporate & Remuneration Committee and Member of Strategy & Investment Committee Mr. Ying Di Liu Senior Engineer and Executive Director Other Board Members on Board of Directors
Tsingtao Brewery – Financial Statements Income Statement 2003-2007
Case Study 4 Corporate Finance – Case Study Chinese public company capital structure and cost of capital estimations and Investment Analysis - Case: Tsingtao Brewery Co. Ltd.
Tsingtao Brewery – Capital Structure LT/ST Debt Stockholders’ Equity Debt to Equity
I-1. Capital structure of the company based on market value We take the end of 2007 as the point to perform this case. Shanghai Stock: 653,150,000, price: 3,914 Hong Kong Stock: 655,070,000, price: 21.7 (exchange rate: 0.9364) market value of the firm's equity = 653,150,000*39.14+655,070,000*21.7*0.9364 = 38,875,234,792 E = market value of the firm's equity E= 38,875,234,792 market value of the firm's debt = 5,556,989,200 ( from balance sheet ) D = market value of the firm's debt D= 5,556,989,200 V = E + D V=44,432,223,992 E/ V = percentage of financing that is equity=87.5% D/ V = percentage of financing that is debt=12.5%
I-2. Beta coefficient beta coefficient A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Also known as "beta coefficient". regression analysis Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market.
In this case based on the weekly rates of return on the stocks of this company, and on the Shanghai Stock Exchange Index for the past two to three years, we conduct the regression analysis, we can get beta coefficient: I-2. Beta coefficient β=0.7758 α=0.0037
I-3. “Cost of equity” or “Required rate of return on the company’s equity” With the formula of R E = α + β R M We calculate the R M from stock price of the last week of 2007, R M =0.0619, Then we can get cost of equity R E = 0.0037+0.7758×0.0619 R E = 0.04825
I-4. Weighted average cost of capital WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing: Where: Re = cost of equity =4.825% Rd = cost of debt =7.65% interest rate (1 year) E = market value of the firm's equity = 38,875,234,792 D = market value of the firm's debt =5,556,989,200 V = E + D =44,432,223,992 E/V = percentage of financing that is equity =87.5% D/V = percentage of financing that is debt =12.5% Tc = corporate tax rate =33% WACC = 0.875×0.04825+0.125×0.0765× (1-0.33) WACC = 4.26%
I-4. Weighted average cost of capital Conclusion: Based on required rate of return on the company's equity ( R E =0.04825), we calculate the NPV =1741 , which is positive, so the proposal is acceptable.