Booze Holdings Case

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 have a sense of an Equity Beta for either of the

intended divisions. However, a number of “pure play” companies do exist within each industry, thus permitting

Booze to establish a proxy Equity Beta for each of their two new operating divisions, that is representative of just

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 Bootleg’s target leverage for each division.

DISTILLERY 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%

E 1.00 23.0% 67%

F 1.08 21.0% 15%

Booze wishes to target a debt/asset ratio of 74% for their distillery 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 0.88 14.0% 23%

B 1.46 79.0% 50%

C 0.38 69.0% 5%