Financial Management HW2 Please prepare a report based on the case entitled “InBev and Anheuser-Busch.” Using the excel sheet that is attached as it included information about the Case study. NOTE: you can google the case study to read more about it. Your report should at least address the following questions:( based on the case study information) 1. What is the intrinsic value? Why is it so important? How is it estimated in business valuation? 2. What is WACC? Why is it so important in business valuation? Please estimate WACC for Anheuser in 2008 using the Excel template attached. In your estimation of cost of equity, use either CAPM or Dividend Discount Model but make sure to justify your model selection. 3. Assess InBev’s bids for Anheuser in 2008 based on discounted cash flow valuation model. How do they compare with the firm’s intrinsic value? a. Using the attached Excel sheet that present free cash flows, with the terminal date at the end. What should determine the “terminal date,” i.e., when you stop forecasting annual cash flows and estimate a terminal value? Do you think 2012 is the appropriate “terminal date” for Anheuser-Busch given its circumstances at the end of 2007? Why? b. Could you recommend an appropriate growth-rate assumption for Anheuser- Busch in the estimation of its terminal value? Justify your growth-rate assumption and estimate Anheuser’s terminal value. c. What is your best estimate (or the range of your estimates) of Anheuser- Busch’s intrinsic value? d. Should InBev’s shareholders endorse the acquisition of Anheuser at $70 per share? The report outline should be as follows: (1) An executive summary that includes your recommendation; (2) A statement of the issue(s) the financial managers face; (3) A presentation and discussion of your Excel findings; (4) Your analysis; (5) Concluding remarks. Length: 4-5 pages Due in 4 hours Running head: GUN CONTROL 1 GUN CONTROL 4 Gun Control is the Answer: A Research Proposal Student's Name Institutional Affiliation Gun Control is the Answer: A Research Proposal Section 1: What is the topic? The topic for this project is "Gun Control is the Answer". Currently, the number of gun-related homicides and mass shootings are on the rise in the US. One example is the Virginia mass shooting that took place in 2007 after which advocates supported the use of more guns in learning institutions (Siebel, 2008). However, having guns in learning institutions does more harm than good to the students in the event of a surprise attack because the victims cannot use these guns (Schuppe, 2016). For that reason, Gun control is the solution because fewer guns mean fewer deaths. In fact, if the number of guns is reduced, the number of suicide cases arising from such deaths will reduce significantly (Nuwer, 2018). Section 2: What is the controversy? The primary argument brought forth by supporters of gun control i ...

1. Financial Management
HW2
Please prepare a report based on the case entitled “InBev and
Anheuser-Busch.” Using
the excel sheet that is attached as it included information about
the Case study.
NOTE: you can google the case study to read more about it.
Your report should at least address the following questions:(
based on the case study
information)
1. What is the intrinsic value? Why is it so important? How is it
estimated in
business valuation?
2. What is WACC? Why is it so important in business
valuation? Please estimate
WACC for Anheuser in 2008 using the Excel template attached.
In your
estimation of cost of equity, use either CAPM or Dividend
Discount Model but
make sure to justify your model selection.
3. Assess InBev’s bids for Anheuser in 2008 based on
discounted cash flow
valuation model. How do they compare with the firm’s intrinsic
value?

2. a. Using the attached Excel sheet that present free cash flows,
with the terminal
date at the end. What should determine the “terminal date,” i.e.,
when you
stop forecasting annual cash flows and estimate a terminal
value? Do you
think 2012 is the appropriate “terminal date” for Anheuser -
Busch given
its circumstances at the end of 2007? Why?
b. Could you recommend an appropriate growth-rate assumption
for Anheuser-
Busch in the estimation of its terminal value? Justify your
growth-rate
assumption and estimate Anheuser’s terminal value.
c. What is your best estimate (or the range of your estimates) of
Anheuser-
Busch’s intrinsic value?
d. Should InBev’s shareholders endorse the acquisition of
Anheuser at $70 per
share?
The report outline should be as follows:
(1) An executive summary that includes your
recommendation;
(2) A statement of the issue(s) the financial
managers face;
(3) A presentation and discussion of your Excel
findings;
(4) Your analysis;
(5) Concluding remarks.

3. Length: 4-5 pages
Due in 4 hours
Running head: GUN CONTROL 1
GUN CONTROL 4
Gun Control is the Answer: A Research Proposal
Student's Name
Institutional Affiliation
Gun Control is the Answer: A Research Proposal
Section 1: What is the topic?
The topic for this project is "Gun Control is the Answer".
Currently, the number of gun-related homicides and mass
shootings are on the rise in the US. One example is the Virginia
mass shooting that took place in 2007 after which advocates
supported the use of more guns in learning institutions (Siebel,
2008). However, having guns in learning institutions does more
harm than good to the students in the event of a surprise attack
because the victims cannot use these guns (Schuppe, 2016). For
that reason, Gun control is the solution because fewer guns
mean fewer deaths. In fact, if the number of guns is reduced,

4. the number of suicide cases arising from such deaths will
reduce significantly (Nuwer, 2018).
Section 2: What is the controversy?
The primary argument brought forth by supporters of gun
control is that more guns translate to more violence. In fact,
guns increase the risk of violence in campuses where the risk
factors are gun theft, surprise attacks, mental issues, drugs and
alcohol (Siebel, 2008). If guns were to be introduced in
campuses which are safe environments, then these lethal
weapons will contribute to the unsafety and unprecedented
violence in the learning institutions (Schuppe, 2016). Secondly,
guns are useless in the event of a surprise attack because people
are not physically or mentally prepared to handle them. Thirdly,
fewer guns will reduce the number of gun-related suicides that
are on the rise as well as the constant conflicts between police
and civilians. For instance, in Australia, the banning of guns
has led to a reduction in suicide cases by 80% (Nuwer, 2018).
Most importantly, proponents of gun regulation argue that guns
are not here to save people because the owner of a gun has 4.5
times probability of dying from the same gun just like the owner
of a vehicle is likely to die out of a car accident (Branstetter,
2015).
However, opponents of gun control are of the opinion that
more guns translate to less violence. First of all, critics of gun
control argue that regulation does not deter further incidences
of gun-related violence just the same way driving around
neighborhoods in police cars does not prevent crime (Goral,
2012). Secondly, critics argue that gun control takes away the
defense mechanisms of the victims in the event of a surprise
shooting. In fact, bad guys who have evil intentions will still
get hold of the guns and when this happens, then citizens cannot
protect themselves. For that reason, the citizens will be
rendered helpless if the gun control laws and barriers that limit
the use of concealed handguns are enacted (Goral, 2012). Most
importantly, opponents of guns control argue that carrying a
gun is a provision under the second amendment of the

5. Constitution that allows individuals to bear arms (Gregory,
Wilson, Park, & Jenkins, 2018). For that reason, gun control
infringes on the rights of the citizens to carry these arms as
mandated by the Constitution.
Section 3: Thesis statement
Fewer guns result in less crime. Thus, gun control is the
answer to the increased gun-related violence because regulating
the use of firearms reduces homicides and suicides in society.
References
Branstetter, G. (2015, March 31). Why we should ban guns on
college campuses. Retrieved from The Daily Dot:
https://www.dailydot.com/via/banning-guns-college-campuses-
elliot-rodger/
Goral, T. (2012, April). Guns on Campus. University Business,
pp. 42-44.
Gregory, S., Wilson, C., Park, A., & Jenkins, A. (2018, April
2). What We Can Do to Stop It. Time, pp. 32-35.
Nuwer, R. (2018, April 18). What if all guns disappeared? .
Retrieved from BBC :
http://www.bbc.com/future/story/20180417-what-would-happen-
if-all-guns-disappeared
Schuppe, J. (2016, October 25). More Guns on Campuses Won't
Make People Safer, Researchers Say. Retrieved from NBC
News: https://www.nbcnews.com/news/us-news/more-guns-
campuses-won-t-make-people-safer-researchers-say-n671911
Siebel, B. J. (2008). The Case Against Guns on Campus. Civil
Rights law Journal, 18(2), 319-337.
Running head: GUN CONTROL 1
GUN CONTROL 6

6. More Guns More Violence: Gun Control is the Answer
More Guns More Violence: Gun Control is the Answer
Branstetter, G. (2015, March 31). Why we should ban guns on
college campuses. Retrieved from The Daily Dot:
https://www.dailydot.com/via/banning-guns-college-campuses-
elliot-rodger/
This article argues that campus should be the last place
that individuals are allowed to carry weapons. What causes gun-
related violence? The answer is simply guns. Guns are the lethal
weapons that assist criminals in carrying out their killing sprees
within and outside the campus. For that reason, a person who
owns a gun is likely to die from in the same way a car-owner is
likely to die from a car crash. However, some risk factors such
as drugs and alcohol contribute to the prevalence of these gun-
related shootings since alcohol impairs judgement. According to
the Center for Disease Control, a third of the gun homicides
involved alcohol and 60% of these victims were intoxicated at
the time of the killing. In conclusion, colleges should come up
with their own gun control policies because guns do not make
people safer. This article is relevant for research because it
highlights the need to ban guns especially on campuses.

7. Goral, T. (2012, April). Guns on Campus. University Business,
pp. 42-44.
This article does not focus on the second amendment that
allows citizens to bear arms. Rather, the focus is on the debate
on whether students should or should not be allowed to bear
arms in colleges. For that reason, this article highlights some of
the arguments for and against the use of guns on campuses.
First of all, proponents of guns in schools argue that the bad
people will still get access to firearms even with gun control
measures in place. Moreover, gun control denies victims the
right to self-defense. However, opponents of gun-use in
campuses argue that since campuses offer safe environments,
introducing guns is a recipe for disaster. According to James
Kenny an Associate Professor of Fairleigh Dickinson University
in New Jersey, people do not have time to use their guns during
a rampage shooting. Thus, alternative solutions should be
adopted instead of arming people. This article is vital for
research because it recognizes that guns do not deter crimes and
are in fact a recipe for disaster.
Gregory, S., Wilson, C., Park, A., & Jenkins, A. (2018, April
2). What We Can Do to Stop It. Time, pp. 32-35.
Gun-related violence is highly prevalent in the US,
especially in schools. According to this article, Americans are
25times likely to die from gun homicides than other citizens
from developed countries. In 2016, 97gun deaths were reported
daily based on The Annals of Internal Medicine report. For that
reason, the authors emphasize that gun control should not be
perceived as a public battle. Rather, adequate measures should
be taken to stop gun violence. Some of the proposed measures
are that the minimum purchasing age for a gun should be raised
from 18 to 21 and that a license should be given to all gun
owners, Gun restraining orders should be issued to unfit
individuals and doctors should educate patients about the safety
of guns. Most importantly, immunity should be denied to gun
owners and manufacturers should be held liable for their
products to ensure they make safer products. This article is

8. relevant for research because it supports the need for gun
control and proposes solutions to end gun violence.
Nuwer, R. (2018, April 18). What if all guns disappeared? .
Retrieved from BBC :
http://www.bbc.com/future/story/20180417-what-would-happen-
if-all-guns-disappeared
Fewer guns mean less gun-related deaths. According to
this article, approximately 500000 people globally lose their
lives annually simply because of gun-related incidences. In the
US, citizens own 300 to 350 million guns which increase the
gun fatalities to 25 times higher in the US compared to other
nations. For that reason, a reduction in the number of guns will
decrease the number of deaths experienced in the nation. This
article states that if guns disappeared, the number of suicides
will also decline an example being in Australia. In fact, the
firearms ban in Australia reduced the gun-related homicides by
half and suicide rates reduced by 80%. Also, reduction in
firearms in the US will translate to a reduction in the violence
cases between police officers and the civilians. Most
importantly, gun-control will reduce the financial burden that
goes towards covering the medical costs of victims involved in
gun-related violence. This article is vital for research because it
highlights the gains of gain control in the United States.
Schuppe, J. (2016, October 25). More Guns on Campuses Won't
Make People Safer, Researchers Say. Retrieved from NBC
News: https://www.nbcnews.com/news/us-news/more-guns-
campuses-won-t-make-people-safer-researchers-say-n671911
Mass shootings in colleges are on the rise. Consequently, a
heated a debate has emerged as to whether carrying guns in
schools helps or hurts the school community. Based on this
debate, this article argues that more guns on campuses actually
do more harm than good. Having concealed guns or firearms in
colleges only raises the risk of gun-related homicides in
institutions that are meant to offer a haven for students.
According to researchers from Johns Hopkins, most of the mass
shootings such as the Virginia Tech in 2007 occur where people

9. carry guns but the majority are not in a position to use these
guns in self-defense. For that reason, the argument that people
are safer when everybody is carrying guns around is a façade.
This article is crucial for research because it emphasizes that
laws which allow the right to carry guns and arms in actual
sense increase gun-related violence in society.
Siebel, B. J. (2008). The Case Against Guns on Campus. Civil
Rights law Journal, 18(2), 319-337.
When the Virginia Tech Mass Shooting took place on April
16, 2007, supporters of gun use lobbied for more guns on
campuses. Be that as it may, Would the students in the once
gun-free campuses free safe knowing their fellow students
carried guns around with such abandonment? Also, would the
parents of these students feel safe in enrolling students in such
institutions? The answer is a resounding no. For that reason,
this article argues that more guns are not the answer to the
horrific mass shootings that are rampant in the American
Campuses. Risk factors that increase gun-related violence in
schools include drugs and alcohol, mental issues and risks of
suicide, gun theft as well as accidental shootings on campus.
Most importantly, more guns in campus deny students a safe
learning environment for carrying their studies. This article is
important for research because it supports the need for gun
control since guns increase the risk of gun-related violence on
campus.
Webster, D., & Daniels, R. (2016, October 16). Allowing guns
on campus will invite tragedies, not end them. Retrieved from
The Washington Post:
https://www.washingtonpost.com/opinions/allowing-guns-on-
campus-will-invite-tragedies-not-end-
them/2016/10/21/a1679f9e-8992-11e6-875e-
2c1bfe943b66_story.html?utm_term=.9955807e3eb9
There is a common belief that more guns in campus results
to less violence. However, this article argues otherwise and

10. emphasizes that more guns increase gun-related violence in the
learning institutions and society at large. Although proponents
of the right-to-carry gun laws argue that more guns will deter
the prevalent active shootings, this article indicates that when
these surprise shootings occur, people are not able to protect
themselves. Moreover, even the most trained officers are not
able to act in such situations. For that reason, the right to carry
gun laws do not deter rampage shootings, especially in
campuses. In conclusion, majority of gun related incidences do
not arise from active shooting. Rather the presence of firearms
is lethal and contribute to increased suicides, disputes and
accidental shootings. This article is vital for research because it
emphasizes that the presence of guns is a recipe for disaster in
society because they increase deaths and accidents.
Running Head: Gun Control
Gun Control
Gun Control is the Answer
Name
Institution
Course
Date
Instructor

11. Gun Control is the Answer
Introduction
The United States has had a history of mass shooting over the
years, and it is essential to acknowledge that most of the shots
were conducted by using firearms that were legally purchased.
Gun control policies can minimize gun related crimes. On the
other hand, it tends to foster the use of illegal guns from the
black market. However, having weapons in learning institutions
does more harm than good to the students in the event of a
surprise attack because the victims cannot use these guns. Many
nations have a policy that restricts the use of firearms with a
few laws that allow the application. Jurisdictions that permit
firearm access have a restriction on the categories of weapons
one can access as well as the group of people allowed to obtain
a firearm license. In the United States, gun control is legislated
at the local state level and federal level. The term gun control is
often politicized with those supporting it, calling it prevention
of gun violence or gun safety or even illegal guns. Purchase of
firearms by civilians is allowed by most countries although it is
subject to some restrictions. The US is different from other
countries in their view of the ownership of firearms. They
consider owning a gun is a civilian’s fundamental right and is
laxer on gun ownership by civilians (Moore, 2018). Other
countries recognize property by civilians privilege and have
restrictive legislation concerning firearm possession.
Controlling guns could lead to a decrease in incidents involving
weapons. Thus, gun control is the answer to the increased gun-
related violence because regulating the use of firearms reduces
homicides and suicides in society.
Literature review
Gun control is the set down policies or laws which regulate the
production, sale, possession, transfer, modification or the
civilian use of firearms (Kleck, 2005). The United States has
had a history of mass shooting over the years. It is important to
acknowledge that most of the shots were by weapons that were

12. legally purchased, in a period spanning 30 years, 75% of the
mass shootings were from legally purchased guns thus through
the creation of more restrictive rules on the purchase of
firearms there will be a decline in mass shooting incidents. Risk
of violence increases with easy gun access. The risk of suicide
or homicide is higher with having a gun at home.
This is regardless of how safely the guns are stored or their
number. According to Arthur Kellerman's article in The New
England Journal of Medicine, in homes where there is a firearm,
the homicide risk is forty times higher compared to households
without weapons as well as 90 times higher risk of suicide when
there is a firearm in a home. Guns are also accessed by people
who should not own them. This is because there are no
background checks on people purchasing guns on private sale
due to the private-sale exemptions law (Stossel, 2008). This
enables people who are not allowed to own firearms to buy them
a strict gun control law will cover this loophole.
Existing gun control laws do not make confiscation mandatory.
The United States Constitution grants a right to have firearms
for self-defense. Licensing and a requirement to understand its
use will lead to a sharp decline in gun violence. There should be
an affordable or free safety and licensing classes. Gun control
could also see a reduction of accidental injuries. According to
statistics, accidental shootings in 2010 caused over 600 deaths.
Between 2005 and 2010, over 1300 people below 25 years of
age died as a result of accidental shootings. Gun control could
see the prevention of over 30% unintentional deaths. This could
include a childproof safety lock and a loading indicator. High
capacity magazines should be banned as they always turn
murder to mass murder. In over 50% of a mass shooting, there
was the use of high capacity magazines raising the death rate to
63% and the injury rate to a high of 156%. There is also the
need for gun control laws that protect women from stalkers and
abusers. In the US there is a murder of five women every single
day. There is a 500% risk increase of a woman's death in the
presence of a gun during a domestic dispute. It is also essential

13. that there is almost zero use of firearms for self-defense (Lee,
2017). Thus the defense that weapons are used for self-defense
is null and void. Licensed guns are often stolen by a criminal
and used to commit felonies. An IOM report states that all the
guns used in crimes got into circulation legally. Common sense
gun control such as background checks, banning high-capacity
magazines and banning of assault weapons is supported by the
majority of adults gun owners included.
Those against gun control argue that gun control laws will lead
to the creation of a black market. If one desires to own a
firearm they will. They say that gun control laws led to the
creation of loopholes for would be legal gun owners to jump to
acquire a gun such as alteration of background information or
stealing of firearms. They claim gun control laws will lead to a
different black market for those who desire guns for self-
defense. Fewer guns lead to fewer incidents involving guns, but
criminals will still use alternative weapons, i.e., vehicle attacks,
knife attacks and homemade explosives in the commission of
the crime. This alternatives cause the same harm as a firearm
and in some cases more damage (Krouse W. J., 2005). They also
that in the United States the majority of deaths related to guns
are suicidal nor homicides. They argue that there is a need for
the improvement of mental health services access, mutual
support and other avenues to help those facing mental ailments.
They further claim that guns are feared by people due to lack of
understanding. They argue that people fear guns, not because if
their capabilities, but what they are representative of to a
person. They state that firearms are owned by people for a sport
or as a tool for use and that understanding it and learning its
responsible use, being around it should not be an experience to
be fearful of (Krouse W. , 2012). Gun control opponents are of
the opinion that gun violence occurs due to devaluing the life of
humans. They claim that people resort to violence as a result of
emotional reactions. They further state that guns are used in the
establishment of territorial control due to the feeling that there
is less value placed on their lives. They feel that equality for

14. everyone as enshrined in the US constitution is what needs to be
addressed as opposed to an individual’s firearm access. Pundits
say that gun control legislation does not hinder crime but gun
ownership does. They argue that assault weapons did not affect
the rates of murder and claim that concealed weapons
contributed to more deaths. They go ahead to state that states
which have high gun ownership rates have registered the most
significant drop in violent crimes. Gun control laws opponents
are of the feeling that the enactment of gun control legislation
will deny citizens the sense of safety and infringe on their right
to self-defend themselves. They claim that the police cannot be
there to protect everybody all the time thus more strict laws will
make it hard for people to protect their families and homes.
They argue that self-defense is a fundamental right which is a
branch of the right to life thus gun control legislation interfere
with law abiding citizens right to protect themselves against
felons (Spitzer, 2009). They quote the constitution in the 37
states "every citizen has a right to bear arms in self-defense and
the state" They claim that a good guy with a gun can only stop a
bad guy with a gun. They argue that convicted felons admitted
they avoided a crime if they knew that the victim was armed.
Controlling guns could lead to a decrease in incidents involving
weapons. Gun control topic is a divisive and emotive topic.
Both proponents and opponents of the legislation have
legitimate claims. However, I believe guns should be controlled
as they have proven to create more violence. We have seen
school children walking into campuses and opening fire on their
fellow students and teachers due to a small disagreement. This
is only possible because of the accessibility of guns. Were this
controlled then there would be a reduction of this and many
more gun-related incidents.

15. Reference
Kleck, J. j. (2005). “Resisting Crime: The Effects of Victim
Action on the Outcomes of Crimes.”. Criminology , pp.
42(4):861-909.
Krouse, W. (2012). Gun control legislation. Washington, D.C.
Congressional Research Service, Library of Congress.
Krouse, W. J. (2005). Gun control legislation. Washington, DC.
Congressional Research Service, Library of Congress.
Lee, C. G. (2017). Gun Control in the United States. Santa
Barbara: ABC-CLIO, LLC.
Moore, L. (2018). I Am the ‘Good Guy With a Gun’’’: Black
Gun Owners Reject Stereotypes, Demand Respect. Newyork
times .
Spitzer, R. J. (2009). Gun Control: A Documentary and
Reference Guide. Westport: Greenwood Publishing Group.
Stossel, J. (2008). Gun control puts people at risk [Editorial.
A09-10-0015
Copyright © 2010 Thunderbird School of Global Management.
All rights reserved. This case was prepared by Professor
Andrew
Inkpen for the purpose of classroom discussion only, and not to
indicate either effective or ineffective management.

16. Andrew Inkpen
InBev and Anheuser-Busch
In early June 2008, Belgian-based InBev NV launched an
unsolicited $46.4 billion bid to acquire Anheuser-
Busch Co., owner of the 132-year-old Budweiser brand. The
combination would create the world’s largest
brewer, with sales of about $36 billion annually. Carlos Brito,
CEO of InBev, said that the deal “will create a
stronger, more competitive, sustainable global company which
will benefit all stakeholders.”1 The initial response
from Anheuser was noncommittal, stating that the company
“will pursue the course of action that is in the best
interests of Anheuser-Busch’s stockholders.” On June 26,
Anheuser’s board formally rejected InBev’s original
proposal of $65 a share, saying it substantially undervalued the
company. The board indicated that it would be
open to a higher price.
In mid-July, InBev raised its offer to $70 a share, and the
Anheuser board voted to accept the deal, recogniz-
ing that a better offer was unlikely. The $70 price represented a
substantial premium for Anheuser shareholders.
InBev management would now have to prove to their
shareholders that the premium was justified.
The Brewing Industry
The basic beer brewing process is quite straightforward. Malted
barley (malt) is the primary ingredient, although
other grains such as unmalted barley, corn, rice, or wheat can
also be used. Yeast, hops, and water are the other
main ingredients. The most challenging aspects of industrial -
scale brewing are maintaining quality control across
large volumes, multiple products, and different production sites,
and ensuring that costs are closely managed.

17. Products
A common characteristic of global beer markets is the
segmentation of products on the basis of quality and price.
Premium brands are at the top of the market, with the very top
of the market represented by the super-premium
segment. Mainstream or core brands are in the middle of the
market; value or discount brands at the lower end
of the market. For example, in the United States, Michelob
would be considered super premium, Budweiser
premium, Miller High Life core, and Busch value. Heineken and
other imports generally compete against super-
premium beers and are priced similarly. Craft beers from small
brewers, such as Samuel Adams Boston Lager
and Sierra Nevada Pale Ale, were an important growth segment.
In the developed countries, most beer consumption was in the
mainstream and premium segments. In the
United States, the top five brands were all in the premium
segment: Bud Light, Miller Lite, Budweiser, Coors
Light, and Corona (import). In countries where consumers have
lower disposable income, the value and discount
segments were more important. Trading up to more expensive
products was a more common trend than trading
down. Once beer drinkers moved up a segment, they rarely
traded down.
Globally, the largest selling brand names by volume were Snow
(China; brewed by a joint venture between
SABMiller and China Resources Enterprises), Bud Light,
Budweiser, Skol (Brazil), Corona, Heineken (Nether-
lands), Brahma (Brazil), Coors Light, Tsingtao (China), and
Miller Lite. (Note: The Snow brand had about 25
extensions. Bud Light was the highest volume single product.)

18. 2 A09-10-0015
Markets
China was the largest market by volume, followed by the United
States, Germany, Brazil, Russia, Japan, U.K.,
Mexico, South Africa, and Spain. In the developed markets,
growth was flat. For example, in the United States,
overall growth was slightly more than 1%. However, in the U.S.
craft segment, growth was 11%, putting pressure
on the large national brewers. Growth in emerging markets was
much higher than in the developed countries.
The China market was growing about 10% annually, although
beer prices were much lower than those in Europe
and North America.
The distribution of beer varied from country to country and
from region to region. The nature of distribu-
tion reflected consumption patterns and market structure,
geographic density of customers, local regulation, and
the existence of third-party wholesalers or distributors. In some
markets, brewers distributed directly to customers
(e.g., Belgium and France), while in other markets, wholesalers
were used, for legal reasons (e.g., United States
and South Korea), or because of historical market practice (e.g.,
Russia and Argentina).
The U.S. brewing industry was dominated by a small number of
firms. For the major brewers, the entire
country represented one huge market with only minor regulatory
differences between the states. The major
brewers concentrated on establishing a limited number of
national brands that generated substantial production
and marketing efficiencies. Beer was distributed to wholesalers,

19. who were then free to distribute to retail selling
points, which in most states were grocery stores, convenience
stores, and drugstores. Prices were controlled only
to the extent of taxation.
Consolidation
Consolidation among the largest brewers (Exhibit 1) was an im-
portant industry characteristic of the last decade. In 2002, SAB
(South Africa) acquired Miller Brewing Company (#2 in the
United
States), creating SABMiller. In 2005, SABMiller acquired a
major-
ity interest in Bavaria S.A., South America’s second largest
brewer,
and in 2008, acquired Grolsch, the second largest brewery in the
Netherlands. In 2005, Coors (United States) and Molson
(Canada)
merged, creating the fifth largest global brewer. In 2007,
Heineken
(Netherlands) became the second largest brewer after partnering
with Carlsberg (Denmark) to acquire Scottish and Newcastle
(U.K). Also in 2007, SABMiller and Molson Coors agreed to
merge
their U.S. operations. The large Danish brewer, Carlsberg, made
a number of regional acquisitions that strengthened its position
in
the Baltic States and Russia.
Interbrew
Interbrew was formed in 1987 when two Belgian families
merged their private brewing interests. Interbrew’s
1995 acquisition of the largest Canadian brewer, John Labatt,
moved the company into the top tier of global
brewers. In addition to many small acquisitions, the company
was involved in two additional major deals: the

20. 2000 acquisitions of U.K. brewers Bass and Whitbread, and the
2003 acquisition of Germany’s Beck’s. Interbrew
went public in 2000.
Interbrew’s strategy was significantly different than that of
companies such as Heineken and Carlsberg.
Interbrew had a stable of national and regional products, and
did not have what could be called true global
brands. With the acquisition of Beck’s and increased
international marketing emphasis on its Belgian brand,
Stella Artois, the company was moving more aggressively to
establish a global presence. Also, because the com-
pany had grown through many acquisitions, there were many
different organizational cultures in the various
parts of the company.
Exhibit 1. The Largest Brewers
Company Millions of hectoliters
SABMiller 230.9
InBev 227.0
Heineken 167.4
Anheuser-Busch 150.6
Carlsberg 121.0
MolsonCoors 58.0
Modelo 50.9
Tsingtao Group 50.5
Beijing Yanjing 40.7
FEMSA 39.9
Balance SheetExhibit1. Anheuser-Busch Balance Sheet (in
Million $, except per share)Dec.31 2006Dec.31
2007AssetsCurrent Assets219.20283.20Accounts
receivable720.20805.20 Inventories694.90723.50 Other Current
assets195.20212.60 Investments in affiliated

21. companies1,829.502,024.50Total Current
Assets3,680.304,019.50Plant & equipment,
net8,916.108,833.50Intangible assets, including
goodwill1,367.201,547.90Other assets584.10729.60Total
Assets16,377.2017,155.00Liabilities and shareholders'
equityCurrent liability1,426.301,464.50Accounts
payable342.80374.30Accrued salaries, wages and
benefits133.90106.20Arrued taxes124.20136.40Accrued
interest218.90222.40Total Current
liability2,246.102,303.80Retirement
benefits1,191.501,002.50Debt7,653.509,140.30Deferred income
taxes1,194.501,314.60Other long term
liabilities152.90242.20Shareholders' EquityCommon stock, $1
par value, authorized 1.6 billion shares1,473.701,482.50Capital
in excess of par value2,962.503,382.10Retained
earnings16,741.0017,923.90Treasury stock, at cost-16,007.70-
18714.70Accumulated non-owner changes in shareholder
equity-1230.80-922.20Total shareholders'
equity3938.703151.6Commitments and contingencies-Total
liabilities and shareholders' equity16377.217155Source: Andrew
Inkpen, InBev and Anheuser-Busch, Thunderbird School of
Global Management, 2010.
income statement & assumptionsExhibit2: Income Statement
and Assumptions(Millions of dollars)10-yrYears Ended
December 31,200320042005200620075 yrs1 yrRevenueNet
sales14,147100.0%14,934100.0%15,036100.0%15,717100.0%16
,686100.0%3.4%6.2%100.0%OPERATING EXPENSES:Cost of
goods
Sold7,57253.5%8,05053.9%8,60157.2%9,17658.4%9,84059.0%
5.4%7.2%56.4%S, G & A
expenses2,49817.7%2,59117.3%2,73018.2%2,83318.0%2,98217
.9%3.6%5.3%17.8%Depreciation, Depletion, and
Amortization8776.2%9336.2%9796.5%9896.3%9966.0%2.6%0.
8%6.2%OPERATING INCOME
(EBIT)3,19922.6%3,36122.5%2,72618.1%2,72017.3%2,89417.3
%-2.0%6.4%19.6%OTHER EXPENSES (INCOME):Interest

22. expense4022.8%454.53.0%4553.0%4512.9%4842.9%3.8%7.3%2
.9%Non-operating
income/expense3652.6%4372.9%5083.4%5973.8%6854.1%13.4
%14.7%3.4%PRETAX
INCOME3,16922.4%3,40422.8%2,69017.9%2,86618.2%3,09518
.5%-0.5%8.0%20.0%INCOME
TAXES1,0937.7%1,1637.8%8505.7%9015.7%9705.8%-
2.4%7.7%6.5%NET
INCOME2,07614.7%2,24015.0%1,93912.9%1,96512.5%2,12512
.7%0.5%8.1%13.6%NET INCOME PER
SHARE,BASIC4.954.565.726.056.400.04%5.3%5.8%0.0%NET
INCOME PER
SHARE,DILUTED4.894.525.635.966.320.04%5.3%6.0%5
yearEffective tax rate0.340.340.320.310.310.33Capital
expenditures (millions of
$)812.505.2%870.005.2%7.1%5.2%Working
Capital5,64035.9%6,13636.8%8.8%51.2%Source: Anheuser-
Busch Annual Reports except the last three columns.
Other InfoExhibit 1(in Million $, except where noted)31-Dec-
0631-Dec-07% changeNet Sales15,717.1016,685.706.20%Gross
Profit5,552.105,849.605.40%As a % of sales35.33%35.06%(0.2)
ptsOperating Income2,719.602,894.006.40%As a % of
sales17.30%17.30%(0.0) ptsNet
Income1,965.202,115.307.60%Diluted EPS2.532.7910.30%# of
shares outstanding715.00Operating cash flow before the change
in working capital2,502.602,963.1018.40%Common dividend
paid per share (in $)1.131.2510.60%Return on shareholders'
equity51.60%59.70%(8.1) ptsTotal
assets6,377.0017,155.00169.00%Capital
expenditures812.50870.007.10%Closing stock price (in
$)49.2052.346.40%Source: Andrew Inkpen, InBev and
Anheuser-Busch, Thunderbird School of Global Management,
2010.
WACCExhibit$ millionsWeightNotesEquity market cap as of
12/31/200737,4230.804 (a)Book value of debt as of
12/31/20079,140.300.196Credit ratingA(b)Beta0.6(c)10-year

23. U.S. treasury YTM as of 12/31/20074.10%(d)A 10-yr corporate
bond yield as of 12/31/20075.50%(e)expected annual market
risk premium4.79%(f)tax rate32.61%(g)dividend growth
rate4.75%(g)last dividend$ 1.250(a)closing share price
12/31/2007$ 52.34(a)Cost of Equity Ke:CAPM6.974Constant
dividend growth (or "Dividend Discount
Model")7.25%WACC:0.0370645with Ke based on
CAPM6.33%with Ke based on Constant dividend growth
model6.56%Sources:(a) Find relevant information from the
"Other Info" tab.(b) Source:
http://www.netadvantage.standardandpoors.com(c)Souce:
Center for Research on Security Price(d)
http://www.federalreserve.gov/releases/h15/data.htm(e)
http://ycharts.com(f)http://people.stern.nyu.edu/adamodar/pdfile
s/papers/ERP2012.pdf(g) Estimated based on historical dividend
payments.
cash flow projectionAssumptionBase
Year200720082009201020112012Notes for assumptions
madePeriod012345Sales6.00%annual growth rate$ 16,685.70$
17,686.84$ 18,748.05$ 19,872.94$ 21,065.31$ 22,329.231.
Historical pattern (including one-year growth rate of 6.1%); (2)
Expectation of recession and (3) strategy to expand
globallyOPERATING EXPENSES:Cost of sales59.0%of total
revenue9,84010,43011,05611,71912,42313,168Expectation of
rising commodity pricesS G & A17.8%of total
revenue2,9823,1503,3393,5403,7523,977Dep. and am.6.2%of
total revenue9961,1041,1711,2411,3151,394Total operating
expenses13,81814,68515,56616,50017,49018,539OPERATING
INCOME (EBIT)2,8943,0023,1823,3733,5753,790PROVISION
FOR INCOME TAXES32.61%of operating
income9709791038110011661236Operating Cash Flows
EBIT3,0023,1823,3733,5753,790 Taxes9791038110011661236
Depreciation and
amortization1,1041,1711,2411,3151,394Operating Cash Flows
3,1273,3153,5143,7253,948Net Capital Spending5.19%of
revenue or depr (whichever is greater)$ 870$ 1,104$ 1,171$

24. 1,241$ 1,315$ 1,394Change in NWC51.21%of incremental
sales$ 496$ 513$ 543$ 576$ 611$ 647FREE CASH
FLOW (=OCF-NCS-Change in
NWC)1,5101,6011,6971,7991,907
ValuationDiscounted Cash Flow Valuation Based on Constant
Growth AssumptionYour Growth Rate Assumption for
TV4%WACC6.33%No. of common shares O/S
(millions)715.00Debt9140.3Year200720082009201020112012Pe
riod012345Cash flows (millions)$ 1,510.28$ 1,600.90$
1,696.95$ 1,798.77$ 1,906.69Terminal value (millions)$
85,105.55Free Cash Flows (with Terminal Value)$ 1,510.28$
1,600.90$ 1,696.95$ 1,798.77$ 87,012.24Value of Firm
Vfirm$69,672.96Less: Value of Long-term Debt
Vd$9,140.30Value of Equity Ve$60,532.66Share Value$ 84.66