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 Booze's target leverage factor for each division.

DISTILLERY INDUSTRY

Company Equity Beta Mkt % of Debt/Assets Revenue as a % of the Industry

A 0.88 14.0% 23%

B 1.46 79.0% 50%

C 0.38 69.0% 5%

D 0.95 65.0% 22%

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

A 0.75 4.0% 5%

B 0.60 10.0% 8%

C 0.13 6.0% 2%

D 0.64 1.0% 3%