HARBIN BREBERY CASE
Question 1: What is the value of Harbin Brewery?
In order to know the value of Harbin Brewery we will use three different methods of calculation in order to have good and accurate economic valuation of the company which will be used to compare
1) First the market value of a company which can be calculated by multiplying the number of shares per its prices of share. This method relies on direct market valuation of the company which is listed on the stock-exchange: 1000 million shares * 3.20 HK$ = 3,200 million HK$
Converting in dollar and according to the exchange rate provided 1 US$ = 7.8 HK$: 3.200 / 7.8 = 410.25 million US$
2) Another method used to calculate the economic value of a company is the Asset-Based evaluation which consists into subtracting to the total asset of the company, its total liabilities: 2050 – 860 = 1190 million HK$.
Converting in dollar and according to the exchange rate provided 1 US$ = 7.8 HK$: 1190 / 7.8 = 152.5 million US$
So the Net Asset value of Harbin Brewery is 1190 million HK$ or 152.5 million US$.
3) The third way to get the economic valuation of Harbin Brewery is to calculate the Cash-flow-based valuation. With this method, the value of a firm’s equity is equal to the net present of future cash flow discounted with the weighted average cost of capital (WACC) minus debt.
As we don’t have access to data’s in the case, we will presume data’s based on research.
Future cash flows: $1850 million (cash flow received in 2004) * 562, 5% of average estimated future cash flow per year (based on the evolution of the cash flow between 2002 and 2004) = $10.406 million of future cash flow in 2005.
WACC: 6,01% ( we assume this figure based on a company research of Harbin Brewery done by the university of Yale available at this address: http://analystreports.som.yale.edu/reports/ABUD.PDF)
So the Cash Flow based evaluation is the following one based on our presumptions: 10406.25 million – 624.375 million- 3, 1 million debt =
In order to know the value of Harbin Brewery we will use three different methods of calculation in order to have good and accurate economic valuation of the company which will be used to compare
1) First the market value of a company which can be calculated by multiplying the number of shares per its prices of share. This method relies on direct market valuation of the company which is listed on the stock-exchange: 1000 million shares * 3.20 HK$ = 3,200 million HK$
Converting in dollar and according to the exchange rate provided 1 US$ = 7.8 HK$: 3.200 / 7.8 = 410.25 million US$
2) Another method used to calculate the economic value of a company is the Asset-Based evaluation which consists into subtracting to the total asset of the company, its total liabilities: 2050 – 860 = 1190 million HK$.
Converting in dollar and according to the exchange rate provided 1 US$ = 7.8 HK$: 1190 / 7.8 = 152.5 million US$
So the Net Asset value of Harbin Brewery is 1190 million HK$ or 152.5 million US$.
3) The third way to get the economic valuation of Harbin Brewery is to calculate the Cash-flow-based valuation. With this method, the value of a firm’s equity is equal to the net present of future cash flow discounted with the weighted average cost of capital (WACC) minus debt.
As we don’t have access to data’s in the case, we will presume data’s based on research.
Future cash flows: $1850 million (cash flow received in 2004) * 562, 5% of average estimated future cash flow per year (based on the evolution of the cash flow between 2002 and 2004) = $10.406 million of future cash flow in 2005.
WACC: 6,01% ( we assume this figure based on a company research of Harbin Brewery done by the university of Yale available at this address: http://analystreports.som.yale.edu/reports/ABUD.PDF)
So the Cash Flow based evaluation is the following one based on our presumptions: 10406.25 million – 624.375 million- 3, 1 million debt =