Diageo PLC Chapter 8 Minicase
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 $55.875 Income tax rate 34% Market data: Diageo’s beta 1.00 Diageo’s long-term borrowing rate 6.75% Riskless returns: Short term 5.13% Intermediate term 5.50 Long term 6.00 Market risk premium: Short term 8.40% Intermediate term 7.40 Long term 7.00
The following table provides information concerning publicly traded restaurant firms.
FIRM STOCK LISTEDBETATOTAL DEBT ($ 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
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.
Why Choose Us
We value our clients. For this reason, we ensure that each paper is written carefully as per the instructions provided by the client. Our editing team also checks all the papers to ensure that they have been completed as per the expectations.
Professional Academic Writers
Over the years, our Acme Homework has managed to secure the most qualified, reliable and experienced team of writers. The company has also ensured continued training and development of the team members to ensure that it keep up with the rising Academic Trends.
Our prices are fairly priced in such a way that ensures affordability. Additionally, you can get a free price quotation by clicking on the "Place Order" button.
We pay strict attention on deadlines. For this reason, we ensure that all papers are submitted earlier, even before the deadline indicated by the customer. For this reason, the client can go through the work and review everything.
At Papers Owl, all papers are plagiarism-free as they are written from scratch. We have taken strict measures to ensure that there is no similarity on all papers and that citations are included as per the standards set.
Customer Support 24/7
Our support team is readily available to provide any guidance/help on our platform at any time of the day/night. Feel free to contact us via the Chat window or support email: email@example.com.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Papers Owl has stood as the world’s leading custom essay writing services providers. Once you enter all the details in the order form under the place order button, the rest is up to us.
At Papers Owl, we prioritize on all aspects that bring about a good grade such as impeccable grammar, proper structure, zero-plagiarism and conformance to guidelines. Our experienced team of writers will help you completed your essays and other assignments.
Admission and Business Papers
Be assured that you’ll definitely get accepted to the Master’s level program at any university once you enter all the details in the order form. We won’t leave you here; we will also help you secure a good position in your aspired workplace by creating an outstanding resume or portfolio once you place an order.
Editing and Proofreading
Our skilled editing and writing team will help you restructure you paper, paraphrase, correct grammar and replace plagiarized sections on your paper just on time. The service is geared toward eliminating any mistakes and rather enhancing better quality.
We have writers in almost all fields including the most technical fields. You don’t have to worry about the complexity of your paper. Simply enter as much details as possible in the place order section.