A Case Study Analysis of Deutsche Brauerei Cost of Capital

Girard Burke

February 6, 2012

1st Case Study (BES #11): Deutsche Brauerei

Purpose: Evaluate and consult on three areas: 1) evaluate the financial plan, 2) decide on a dividend policy and 3) determine a compensation plan for the sales manager, Oleg Pinchuk.

Case Summary Overview:

The purpose of this portion of the case study analysis is to evaluate Deutsche’s performance. I am evaluating it in terms of their expressed interest to expand in the years 2001 and 2002 by developing a new plant and buying new equipment in their Munich, Germany location. In addition, Oleg Pinchuk is proposing to add distribution warehouses in Ukraine. I recommend that dividends will be held after this quarter pay out and based which will increase cash for the upcoming investments in a new plant and equipment in 2001 and 2002. This arrangement will also create less reliance of future short-term and long-term borrowing.

To conclude my overview of the financial analysis, there are serious flaws which need to be considered in Deutsches projection for 2001 and 2002. Ultimately, with the market opportunities in Eastern Europe and the Soviet states the new plant and equipment investment should be built in Ukraine rather than in Munich, Germany to capitalize on the geographic distribution centers’ central locale. Output and distribution in both Munich and Ukraine is feasible in the long-run and output capacity with low transport and inventory costs will be maximized. Since Deutsche beer has distribution channels established, the inventory warehouses will be at the expense of distributors.

Holding dividends and analysis of compensation based on review of the net RIO and EVA will ultimately affect the compensation structure of Oleg Pinchuk. In summary, it is recommended that Pinchuk will be compensated with stocks and primarily stock options based on Deutsche’s net ROI and EVA and the price-earnings ratio.

This case clearly represents the importance of Deutsche making long-run...