Diageo plc chapter 8 minicase

Diageo PLC  Chapter 8 Minicase

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

 

A recent annual report for Diageo PLC explains that its investments are expected to generate cash returns that exceed its “long-term cost of capital,” which Diageo estimated to be approximately 10%. Diageo has three main lines of business: food items, such as Haagen Dazs ice cream; alcoholic beverages, such as Seagrams; and restaurants, such as Burger King. Diageo did not report costs of capital separately for these three businesses. Information from the annual report is given here, followed by relevant market data. Financial information: Cash and marketable securities $1,498 million (approximates market value) Short-term debt $706 million (approximates market value) Long-term debt $8,509 million ($8,747 million market value) Common shares outstanding 788 million Year-end share price $55.875 Income tax rate 34% Market data: Diageo’s beta 1.00 Diageo’s long-term borrowing rate 6.75% Riskless returns: Short term 5.13% Intermediate term 5.50 Long term 6.00 Market risk premium: Short term 8.40% Intermediate term 7.40 Long term 7.00

 

 

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

The following table provides information concerning publicly traded restaurant firms.

 

FIRM STOCK LISTEDBETATOTAL DEBT ($ MILLIONS)PREFERRED STOCK ($ MILLIONS)COMMON SHARES (MILLIONS)CLOSING STOCK PRICE Applebee’sNASDAQ1.3028.5-31.0$22.750 Bob Evans FarmsNASDAQ0.9554.7-42.319.000 Brinker InternationalNYSE1.70104.7-72.115.125 CKE RestaurantsNYSE1.1586.7-18.416.000 McDonald’sNYSE1.004,820.1411.1694.045.125 NPC InternationalNASDAQ0.8081.4-24.57.250 Shoney’sNYSE0.90440.4-41.510.250 Wendy’s InternationalNYSE1.15147.0-103.421.250

 

 

QUESTIONS

1. Diageo subtracts the value of its portfolio of short-term investments, which is held outside the United States and is not required to support day-to-day operations, from its total debt when calculating its “net debt ratio.” Use Diageo’s net debt ratio to calculate Diageo’s overall WACC.

 

2. Should Diageo use its overall cost of capital to evaluate its restaurant investments? Under what circumstances would it be correct to do so?

 

3. Estimate the cost of capital for Diageo’s restaurant businesses.

 

4. Explain why there is a difference between Diageo’s overall cost of capital and the cost of capital for its restaurant businesses.

Calculate your order
Pages (275 words)
Standard price: $0.00
Client Reviews
4.9
Sitejabber
4.6
Trustpilot
4.8
Our Guarantees
100% Confidentiality
Information about customers is confidential and never disclosed to third parties.
Original Writing
We complete all papers from scratch. You can get a plagiarism report.
Timely Delivery
No missed deadlines – 97% of assignments are completed in time.
Money Back
If you're confident that a writer didn't follow your order details, ask for a refund.

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
$0.00
Power up Your Academic Success with the
Team of Professionals. We’ve Got Your Back.
Power up Your Study Success with Experts We’ve Got Your Back.
Open chat
1
Order through WhatsApp!
nursingesssayswritings.com
Hello!
You Can Now Place your Order through WhatsApp

Order your essay today and save 30% with the discount code ESSAYHELP2