I have one case study which names Sun Brewing A need help to review the different answers of 5 questions then provide the final answer with necessary correction on the statement & calculations. I expect to know how's the calculations by reference data on attached exhibits of case and show them by excel file.

Case5: SUN Brewing (A) Q1. What situation was Khemka family involved in during the case? What other options could they choose originally ? The Khemka family was involved in situations as below, Financial problem: In August 1998, the Russian economy collapse.With the country defaulting on public and private debt, and a massive devaluation of the rouble, the drop in traded equity in Russian companies was precipitous. SUN Brewing's stock price, which had reached an all-time high of $19.5 in March, plummeted to $1.75 on September 22, and the stock price still remained well under $3.00 by March 1999. SUN Brewing was forced to cancel its intended NYSE offerings, and they still have a $40 million bridge loan that needed to be repaid right away. For Khemka family, concerns included not only the debt but also financing for future growth and required capital expenditures. But at that time, they counldn't get fund through conventional ways like IPO or issue debts. Facing a rival: In early 1999, apart from the severe impact of the Russian financial crisis, Sun Brewing was facing intense competition fromm its longtime rival, Baltika, which had overtaken SUN as the leading Russian brewer. To deal with this situation, Khemka family could choose to: 1. wait it out This approach would require Shiv to continue to run the business himself on a sparse budget, and would also require the family to inject additional funds into the company from other parts of their business group. 2.bring in a global beer company as a partner This approach would help SUN Brewing maintain or improve upon its position as the number two in Russia. However, Khemka family wondered how much value potential partners would see in SUN Brewing following the Russian crisis, and whether or not they would be willing to buy at a sufficient premium to the currently depressed stock price, at which the family was unwilling to sell any equity. Q2. Why there are different financing ways in each period? 1993 In order to make capital improvements and other investment in the beer business, SUN Brewing's board determined that the company should try to raise outside capital through private placement. 1994 Many Russian companies and plants were operating under distress. Along with trade liberalization and privatization came foreign competition, and companies adjusting to the new environment had considerable difficulty raising capital and attracting managerial expertise. Given this environment, the family felt it was important to reinvest as much of the beer company's earnings as possible back into the business. Additional outside capital was also needed to fund the continuing need for heavy capital expenditures. SUN brewing issued Global Depository Receipts to private investors. 1995 With the improvements made in business operations and the need for further capital expenditures, SUN Brewing faced a cash shortfall. To overcome the shortfall, the SUN Trade International coverted 2.5 million of its 7,561,800 SUN Brewing shares into GDRs, and transferred the GDRs to the bank as collateral for a $5 million loan at an annual interest rate of 60%. Later in 1995 As a condition to the 1993 private placement, the Khemka family had agreed to take SUN Brewing public within two years, to assure outside investors the opportunity to liquefy their positions. Luxembourg was chosen. In 1998 By 1998, SUN Brewing had become one of the largest beer producers in Russia. The family wanted to propose the initial public offering at New York Stock Exchange. One intention was to continue growing the company for two to three more years, before bringing in a strategic partner and another was meant to cover SUN Brewing's outstanding liabilities. Q3A) How many funds did SUN Brewing need in March 1999? Obligational buyback ($14,873,434) Bridge loan ($7,000,000) Operating liabilities ($16,965,000) Estimated capital expenditure ($100,000,000) TOTAL ($138,838,434) Cash and cash equivalents Additional capital needed $4,951,000 $133,887,434 Q3B) What is the value of the company at this time? One approach can be done by stockprice as follows: EV =MVE+TDcash Stockprice $2.3 Number of shares 1,265,000 Market Value of Equity $29,095,000 Short-term obligations $1,063,000 Loans payable $7,000,000 Total Debt $8,063,000 Cash and cash equivalents $4,951,000 Enterprise Value $32,207,000 However this approach is not appropriate due to the recent turmoil in Russia and devaluation of Russian rouble. Therefore more valid approach would be: TD SE WACC= CD+ C TD +SE TD +SE E Total Debt $8,063,000 Shareholders Equity $66,037,000 Cost of debt 60 % Cost of Equity 32,4 % 8,063,000 66,037,000 WACC= 0.6+ 0.324=0.065+ 0.289=0.354 (35.4 ) 74,100,000 74,100,000 WACC established this way seems appropriate and explains well the big risk connected with investing at that time on the Russian market. The growth rate for the upcomming 5 years is for the following calculation assumed to be 20%. 1998 1999 2000 2001 2002 2003 20.7 24.8 29.8 35.8 42.9 51.5 Depreciation 9.3 12.8 14.7 15.5 15.9 Free Cash Flow 29.2 36,6 43.3 49.8 57.1 Discount factor (WACC-g) 0.65 0.42 0.27 0.17 0.11 Discounted Cash Flow 18.8 15.3 11.7 8.7 6.4 EBITDA Enterprise Value $60,900,000 The estimated value of the company using WACC and DCF is almost double the estimate using stockprice. As the stockprice fell down significantly due to the devaluation of Russian rouble, we believe this is much more appropriate estimate of the enterprise value and more favorable value for Khemka family. Q4 What kind of risks are in investing in Russian beer industry in 1999? Difficulty to take Russian companies to the international capital SYSTEM RISK markets Russian government controlls the foreign capital Competitors advantage (Baltika's prognosis promises tough SYSTEM RISK competitor for upcomming years) Unstable currency (devaluation of Russian rouble) EXCHNAGE RISK Unstable political and economical situation (risk of default) CREDIT RISK Q5. Analyze the pros and cons of the Khemka family facing in 1999. Wait it out Bring in Major Global Beer Company as Strategic Partner pros 1. Family sustaining their controlling 1. stake (major decision maker) 2. improve upon its position 2. Still being a independent company Help the company maintain or Usage of Economies of Scale (stronger market positioning) 3. Debt can be coverage (Funds from outsider) 4. Additional financial and Human Resources cons 1. Stock price could still be lower 1. than $3.00 2. Running the business on a sparse Reducing the controlling power (reducing flexibility in decision) 2. Uncertainty of the equity value budget 3. (partner Require the family on inject sufficient willing to premium buy to at the additional funds 4. May have many difficulties competing with other companies in the same industry depressed stock price or not) 3. Conflicts between culture and profits companies CASE PROBLEM 6: SUN Brewing (A) 1. What situation was Khemka family involved in during the case? What other options could they choose originally? They had to backed up from their plans of rising $200 - $400 million in equity and debt on the New York Stock Exchange. This was mainly because Russia was facing an unprecedented rouble devaluation and a deep financial crisis, that made their financial option couldn't be executed. This capital was needed to finance major investments in the face of increased competition from international beer companies in the Russian market. One of its major competitors was Baltika, which had overtaken SUN as the leading Russian brewer. Baltika even wanted to merge between Carslberg and Swedish-based Pripps, which was a co-owner in Baltika's holding company. This money also can be used to repay $40 million bridge loan that needs to be repaid immediately. However, as the currency deflated and financial crisis happened, they couldn't do this option. Besides rising money by selling equity there were other options the Kherma family could have chosen. First they can bring a major global beer company as an strategic partner, this will not only inject cash but also knowledge and resources the partner might have. They could also stay in total control of the company allocating several millions of dollars into the company, from other parts of the family business and waiting until more proper time to expect any outside capital provider. 2. Why there are different financing ways in each period? Because the company went through several periods of time, each of those characterized by abrupt transactions in the Russian economy. There were also political and economic factors, the rise of the emerging markets, and multinational global industry mergers and acquisitions which have influenced its operating methods. There are different financing ways in each period because SUN faced different types of situations. A) During opening of SUN At first, 100% financing came from SUN Trade International Ltd (STI), its own group company. B) 1993 Starting from 1993, SUN made private placement to three investors, in return for a combines 30% stake in the company. The placement left Khemka family with ownership of 70% of SUN Brewing's equity. C) 1994 SUN issued GDR (Global Depository Receipts) to private investors, which resulted in Khemka family ownership went down to 60%. D) 1995 SUN filled in IPO in Luxembourg Stock Exchange , listed its 12,650,000 issued shares, along with all of the 6,309,500 issued GDRS. E) 1998 SUN would like to do IPO in New York Stock Exchange, but not yet fulfilled because Rusian economy collapsed. We can see how the financing decision of SUN brewing depends on its timing. As it just invented in 1993, it didn't need much capital from outside investors so it used internal sources of financing. But as the company grew, SUN did private partnership to raise its capital. Later, it did an IPO to open the investment opportunities of SUN Brewing to public. 3. How many funds did Sun Brewing need in March, 1999? What the value of company at t his time? For the company there were two main concerns, the first one was a bridge loan of $400 million taken out six months earlier and also financing for the future growth and required capital expenditures, which were estimated to be over $100 million. That was about a target of $500 million to be raised. Sun Brewing Valuation (March, 1999) Net Sales - Beer Net income Add depreciation Deduct change in net working capital Deduct capital expenditures excl packaging FCF Constant growth value after 2003 Discounted rate FCF 1999 124.6 9 9.3 -4.3 -65.6 2000 165.7 14.7 12.8 -4.6 -75.2 2001 204.2 23.3 14.7 -4 -55 2002 242.1 30.1 15.5 -3.6 -36.2 2003 282.5 38.1 15.9 -3.3 -21.8 -51.6 -52.3 -21 5.8 1.03437 0.96677 2 50.5622 0.93464 8 -19.6276 0.90359 2 5.24083 2 28.9 161.707 0.87356 7 25.2460 9 141.261 9 -53.3735 FCF Terminated value Total 48.1855 5 Debt Equity Cost to equity Cost to debt WACC 87389 66037 30% 60% 34.175042039810700 % 56.96% 43.04% 12.912478980094600 % 47.088 % 34.37% GR 14% 4. What kind of risks investing in the Russian beer industry in 1999? As Russian economy collapsed, the sales of beer might be threatened. Beer is not main necessity. As economy went down, people tend to spend less money, especially for not main necessity. So, beer sale can drop dramatically. Beer market competition became more intense as Baltika, one of leading beer producer, will to merger between Carlsberg and Swedish-based Pripps, which was co-owner in Baltika's holding company. Finally the rouble is still a very week currency which has being devaluated continuously, as an operation currency this can translate to big losses for the investors. 5. Analyze the pros and cons of the Khemka family facing in 1999. SUSTAINING CONTROLLING STAKE Pros: Cons: Khemka family still could run business under their own management. SUN Brewing will still be a stand-alone company, and can try to be profitable for Khemka family, not others. Khemka family needs to inject additional funds into the company from other parts of their business group. SUN Brewing stock price can weaken over time due to the crisis and fund needed to grow. PARTNERING WITH A GLOBAL BEER COMPANY Pros: Cons: There were some preliminary interest of partnering with others, such as with South Africab Breweries, Anheuser-Busch, and Belgian-beased Interbrew. SUN Brewing can maintain or improve upon its position as the number two player in Russia. Outsources funding can be used to pay the bridge loan. SUN Brewing market value can rise. SUN Brewing can develop its product line and increase income. Khemka family worried that partners would undervalue SUN Brewing value as financial crisis occurred Partner would not be willing to buy at a sufficient premium to the currently depressed stock price, a price at which the family was unwilling to sell any equity. Khemka would not be the only controlling power in company. Corporate Finance SUN Brewing (A) 1 SUN Brewing (A) Q1. What situation was Khemka family involved in during the case? What other options could they choose originally? Along with toughness of establishment the business in Russian environment, SUN Brew was involved into the rivalry with another brewing company- Baltika, which was its long time competitor and had overtaken SUN as the leading Russian brewer in 1999. As SUN Brewing had roughly $5 million in cash and cash equivalents and was liable for the bridge loan taken in 1998, the family's concerns were both debt and financing for future growth and required capital expendituresestimated to be over $100million. There were 2 options considered by SUN Brewing: 1. The original option- \"wait it out\