Below are questions that go along with attached excel file, mainly need help solving the excel file and the formulas involved in the answers in excel on tabs labeled WACC, cash flow projections, and valuation.

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?

4. Complete the attached Excel sheet by projecting 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?

5. 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.

6. What is your best estimate (or the range of your estimates) of Anheuser-Busch's intrinsic value?

7. Should InBev's shareholders endorse the acquisition of Anheuser at $70 per share?

Exhibit1. Anheuser-Busch Balance Sheet (in Million $, except per share) Dec.31 2006 Assets Current Assets Accounts receivable Inventories Other Current assets Investments in affiliated companies Total Current Assets Plant & equipment, net Intangible assets, including goodwill Other assets Total Assets Liabilities and shareholders' equity Current liability Accounts payable Accrued salaries, wages and benefits Arrued taxes Accrued interest Total Current liability Retirement benefits Debt Deferred income taxes Other long term liabilities Shareholders' Equity Common stock, $1 par value, authorized 1.6 billion shares Capital in excess of par value Retained earnings Treasury stock, at cost Accumulated non-owner changes in shareholder equity Total shareholders' equity Commitments and contingencies Total liabilities and shareholders' equity 219.20 720.20 694.90 195.20 1,829.50 3,680.30 8,916.10 1,367.20 584.10 16,377.20 1,426.30 342.80 133.90 124.20 218.90 2,246.10 1,191.50 7,653.50 1,194.50 152.90 1,473.70 2,962.50 16,741.00 -16,007.70 -1230.80 3938.70 16377.2 Source: Andrew Inkpen, InBev and Anheuser-Busch, Thunderbird School of Global Management, 2010. per share) Dec.31 2007 283.20 805.20 723.50 212.60 2,024.50 4,019.50 8,833.50 1,547.90 729.60 17,155.00 1,464.50 374.30 106.20 136.40 222.40 2,303.80 1,002.50 9,140.30 1,314.60 242.20 1,482.50 3,382.10 17,923.90 -18714.70 -922.20 3151.6 17155 of Global Management, 2010. Exhibit2: Income Statement and Assumptions (Millions of dollars) Years Ended December 31, 2003 2004 2005 2006 Net sales OPERATING EXPENSES: Cost of goods Sold S, G & A expenses Depreciation, Depletion, and Amortiza 14,147 100.0% 14,934 100.0% 7,572 2,498 877 53.5% 17.7% 6.2% 8,050 2,591 933 53.9% 17.3% 6.2% 8,601 2,730 979 57.2% 18.2% 6.5% 9,176 2,833 989 OPERATING INCOME (EBIT) OTHER EXPENSES (INCOME): Interest expense Non-operating income/expense 3,199 22.6% 3,361 22.5% 2,726 18.1% 2,720 402 365 2.8% 2.6% 454.5 437 3.0% 2.9% 455 508 3.0% 3.4% 451 597 PRETAX INCOME INCOME TAXES 3,169 1,093 22.4% 7.7% 3,404 1,163 22.8% 7.8% 2,690 850 17.9% 5.7% 2,866 901 NET INCOME 2,076 14.7% 2,240 15.0% 1,939 12.9% 1,965 15,036 100.0% 15,717 NET INCOME PER SHARE,BASIC 4.95 4.56 5.72 6.05 NET INCOME PER SHARE,DILUTED Effective tax rate 4.89 0.34 4.52 0.34 5.63 0.32 5.96 0.31 Capital expenditures (millions of $) 812.50 Working Capital Source: 5,640 Anheuser-Busch Annual Reports except the last three columns. 2006 2007 5 yrs 1 yr Revenue 100.0% 16,686 100.0% 3.4% 6.2% 100.0% 58.4% 18.0% 6.3% 9,840 2,982 996 59.0% 17.9% 6.0% 5.4% 3.6% 2.6% 7.2% 5.3% 0.8% 56.4% 17.8% 6.2% 17.3% 2,894 17.3% -2.0% 6.4% 19.6% 2.9% 3.8% 484 685 2.9% 4.1% 3.8% 13.4% 7.3% 14.7% 2.9% 3.4% 18.2% 5.7% 3,095 970 18.5% 5.8% -0.5% -2.4% 8.0% 7.7% 20.0% 6.5% 12.5% 2,125 12.7% 0.5% 8.1% 13.6% 6.40 0.04% 0.0% 0.04% 5.3% 5.8% 5.3% 6.0% 6.32 0.31 5 year 0.33 5.2% 870.00 5.2% 7.1% 5.2% 35.9% 6,136 36.8% 8.8% 51.2% 10-yr Exhibit 1 (in Million $, except where noted) 31-Dec-06 31-Dec-07 15,717.10 16,685.70 5,552.10 5,849.60 35.33% 35.06% 2,719.60 2,894.00 17.30% 17.30% Net Income 1,965.20 2,115.30 Diluted EPS 2.53 2.79 Net Sales Gross Profit As a % of sales Operating Income As a % of sales 715.00 # of shares outstanding Operating cash flow before the change in working capital Common dividend paid per share (in $) Return on shareholders' equity Total assets Capital expenditures Closing stock price (in $) 2,502.60 2,963.10 1.13 1.25 51.60% 59.70% 6,377.00 17,155.00 812.50 870.00 49.20 52.34 Source: Andrew Inkpen, InBev and Anheuser-Busch, Thunderbird School of Global Management, 2010. % change 6.20% 5.40% (0.2) pts 6.40% (0.0) pts 7.60% 10.30% 18.40% 10.60% (8.1) pts 169.00% Management, 2010. 7.10% 6.40% Exhibit $ millions Equity market cap as of 12/31/2007 Book value of debt as of 12/31/2007 Credit rating Beta 10-year U.S. treasury YTM as of 12/31/2007 A 10-yr corporate bond yield as of 12/31/2007 expected annual market risk premium tax rate dividend growth rate last dividend closing share price 12/31/2007 Cost of Equity Ke: CAPM Constant dividend growth (or "Dividend Discount Model") WACC: with Ke based on CAPM with Ke based on Constant dividend growth model 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/pdfiles/papers/ERP2012.pdf (g) Estimated based on historical dividend payments. A 0.6 4.10% 5.50% 4.79% 32.61% 4.75% Weight Notes (a) (b) (c) (d) (e) (f) (g) (g) (a) (a) Assumption Period Sales 6.00% annual growth rate OPERATING EXPENSES: Cost of sales S G & A Dep. and am. 59.0% of total revenue 17.8% of total revenue 6.2% of total revenue Total operating expenses OPERATING INCOME (EBIT) PROVISION FOR INCOME TAXES 32.61% of operating income Operating Cash Flows EBIT Taxes Depreciation and amortization Operating Cash Flows Net Capital Spending Change in NWC FREE CASH FLOW 5.19% of revenue or depr (whichever 51.21% of incremental sales (=OCF-NCS-Change in NWC) Base Year 2007 2008 2009 2010 1 2 3 0 $ 16,685.70 9,840 2,982 996 - - - 13,818 2,894 970 $ $ 870 $ 496 $ 0 - $ (8,544) $ 0 - 0 $ $ - 2011 2012 4 5 Notes for assumptions made 1. Historical pattern (including one-year growth rate of 6.1%); (2) Exp Expectation of rising commodity prices - - 0 $ $ - 0 $ $ - wth rate of 6.1%); (2) Expectation of recession and (3) strategy to expand globally Discounted Cash Flow Valuation Based on Constant Growth Assum Your Growth Rate Assumption for TV WACC No. of common shares O/S (millions) Debt Year Period Cash flows (millions) Terminal value (millions) Free Cash Flows (with Terminal Value) Value of Firm Vfirm Less: Value of Long-term Debt Vd Value of Equity Ve Share Value 2007 0 2008 1 nt Growth Assumption 2009 2 2010 3 2011 4 2012 5