Essay About Long-Term Debt And Cost Of The Long-Term Debt

Boze Holding Case Study
Booze Holdings, Inc. intends to invest in two new operating divisions, a distillery company and a beer
distributorship. While Booze is publicly traded, it does not possess an Equity Beta for either of the
intended divisions. However, on the other hand, a number of “pure play” companies do exist in each industry,
thus permitting Booze to establish a proxy Equity Beta for each of their two new operating divisions, that is
representative of the “operating characteristics” of each of the divisions. However, the degree of leverage for each
of the firms in the industry(s) differ from each other and from Boozes target leverage factor for each division.
DISTILLERY INDUSTRY
Company
Equity Beta
Mkt % of Debt/Assets
Revenue as a % of the Industry
14.0%
79.0%
69.0%
65.0%
Booze wishes to target a debt/asset ratio of 74% for their automotive supply division, representative of
principally long-term debt, the cost of the long-term debt for this division, estimated at 10.05%.
BEER DISTRIBUTORSHIP INDUSTRY
Company
Equity Beta
Mkt % of Debt/Assets
Revenue as a % of the Industry
10.0%