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Please, Any help on tis problem will be greatly appreciated Pitt Beverage (PB) Capital Cost Finance-Moeller PB is a publicly listed brewery and bottling company.

Please, Any help on tis problem will be greatly appreciated

image text in transcribed Pitt Beverage (PB) Capital Cost Finance-Moeller PB is a publicly listed brewery and bottling company. The firm uses standard weighted average cost of capital (WACC) and CAPM calculations to find its cost of capital. The firm has two divisions. The brewery division's market value (V) is twice the size of the bottling division's market value. The target-level of (long-term) debt to market value is one-third (1/3) for PB (25% for the brewery division and 50% for the bottling division respectively). Because of the firm's relatively high level of debt, it is not reasonable to assume the beta of debt is zero but you can assume that small changes in capital structure do not affect the beta of debt. Projects undertaken by the brewery division are usually short-term (up to 1 year) projects. Bottling projects usually involve longer-term investments, averaging approximately 10 years. Use the financial information on the next page to answer the following questions (do them in order!): a. Calculate the cost of capital (RWACC) for PB. b. Calculate the cost of capital (RWACC) for the brewery division of PB. c. Calculate the cost of equity for the bottling division of PB. d. The CFO has just returned from a meeting with PB's bankers and is seriously considering switching a large portion of debt from fixed to floating rate and altering the target capital structure to keep a constant dollar amount of debt rather than a constant proportion. How would that change your calculations above? You do not have to re-do them, just give a brief description of the difference. CONSOLIDATED BALANCE SHEET FOR PB CORPORATION (2016: in millions of dollars) Assets 2016 Cash 1,234 Cash Equivalents 4,567 Accounts Receivables 12,345 Inventories 11,346 Total Current Assets 29,492 Net Plant Property and Equipment 60,397 Software 5,515 Other Net Fixed Assets 28,835 Total Assets 124,239 Liabilities Accounts Payable Deferred Income Compensation and Benefits Total Current Liabilities Long-term Debt Common Stock and Surplus Retained Earnings Total Stockholder Equity Total Liabilities and Stockholder Equity OTHER FINANCIAL INFORMATION FOR PB Shares outstanding: September 2016 closing price per share: Beta1 Corporate Tax Rate 1,365 3,575 4,679 9,619 45,000 30,000 39,620 69,620 124,239 1.4 billion $52 2.2 34% INDUSTRY INFORMATION (ALL DEBT REFERS TO LONG-TERM DEBT: DLT + E = V) Average Debt-to-Equity ratio for brewery companies: 0.5 Average Equity Beta for brewery companies1: 1.6 Average Debt Beta for brewery companies: 0.3 Average Debt-to-Equity ratio for bottling companies: Unavailable Average Unlevered Equity for bottling companies: Unavailable BOND-MARKET INFORMATION AND CREDIT SPREADS Rates on long-term government bonds (10-year) Rates on short-term government notes (1-year) Market Risk Premium (RM Rf) PB Debt (Brewery) Rate Premium above Government 2.25% 1.0% 6.5% 1.75% 1 Beta has been calculated using regression analysis, where stock returns of the corporation for the past 200 days are regressed on the past 200 days of returns on the S&P 500 stock market index. PB Debt (Bottling) Rate Premium above Government 2.00%

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