Chestnet Foods

Assignment No 2: Submitted By

Name MF ID
Ahmad Ali MF20019
Saji Manikanta MF20017
Suraj MF20008
Ruchi MF20006
Cost of Debt
Comparable firms in food processing

Company Total Debt Total Equity Total Value D/V

Boulder Brands 298 958 1256 0.237

Cambell Soup 4832 13223 18055 0.268
ConAgra Foods 9590 13805 23395 0.410
Diamond foods 593 578 1171 0.506
Flower foods 923 4429 5352 0.172
General Mills 8645 31245 39890 0.217
Hormel Foods 250 11759 12009 0.021
Kellogg 7358 21841 29199 0.252
JM Smucker 2241 10904 13145 0.170
Tyson Foods 1942 11469 13411 0.145
Average D/V Value 0.240

Cost Of Equity for food processing firm

Bottom up Beta
To compute this beta we need division /Pvt Company
Comparable firms/ Equity Beta (Levered beta)
Equity Beat into asset beta ( Unlevered beta )

Equity beta = Asset beta [ 1+ (1-t) *D/E]

Asset Beta = Equity beta / [ 1+ (1-t) *D/E]

Company Total Debt Total Equity Equity Beta

Boulder Brands 298 958 0.55

Cambell Soup 4832 13223 0.60
ConAgra Foods 9590 13805 0.70
Diamond foods 593 578 0.75
Flower foods 923 4429 0.50
General Mills 8645 31245 0.55
Hormel Foods 250 11759 0.65
Kellogg 7358 21841 0.60
JM Smucker 2241 10904 0.70
Tyson Foods 1942 11469 0.80
 Average Asset Beta of
sector

Company Total Debt Total Equity Equity Beta

Equity Beta of Chestnut

Chestnut Food 461 1840 0.90 Food

COE of Food Division

Company Equity Beta Cost Of Equity

Boulder Brands 0.55 6.10

Cambell Soup 0.60 6.40
ConAgra Foods 0.70 7.00
Diamond foods 0.75 7.30
Flower foods 0.50 5.80
General Mills 0.55 6.10
Hormel Foods 0.65 6.70
Kellogg 0.60 6.40
JM Smucker 0.70 7.00
Tyson Foods 0.80 7.60
Avg levered Beta 0.64
Average cost of equity 6.64

WACC for Comparable firms in food processing

Post Tax
cost of
Company Debt Cost Of Equity D/V E/V

Boulder Brands 4.28 6.10 0.24 0.76

Cambell Soup 2.39 6.40 0.27 0.73
ConAgra Foods 2.90 7.00 0.41 0.59
Diamond foods 5.67 7.30 0.51 0.49
Flower foods 2.90 5.80 0.17 0.83
General Mills 2.39 6.10 0.22 0.78
Hormel Foods 2.08 6.70 0.02 0.98
Kellogg 2.39 6.40 0.25 0.75
JM Smucker 2.39 7.00 0.17 0.83
Tyson Foods 2.58 7.60 0.14 0.86

Average WACC

Levered Beta for Food processing division

Average levered Beta of

comp firms 0.64
Avg D/E of Comp firms 0.36
Tax rate 0.37
Un;evered Beta for industry 0.52

Relevering , Levered beta for

the division 0.60
 Post Tax COD in % ( tax
D/E Company Bond Rating Applicable COD from exbit 3 in case Pre Tax COD

0.31 Boulder Brands B plus 6.8 4.284

0.37 Cambell Soup BBB Plus 3.8 2.394
0.69 ConAgra Foods BBB minus 4.6 2.898
1.03 Diamond foods B minus 9 5.67
0.21 Flower foods BBB Minus 4.6 2.898
0.28 General Mills BBB plus 3.8 2.394
0.02 Hormel Foods A 3.3 2.079
0.34 Kellogg BBB Plus 3.8 2.394
0.21 JM Smucker BBB Plus 3.8 2.394
0.17 Tyson Foods BBB 4.1 2.583
0.36 Average COD 4.76 2.9988

Asset Beta

0.46
0.49
0.49
0.46
0.44
0.47
0.64
0.49
0.62
0.72
 0.53
Levered or EB of chestnet food = Asset Beta of
food industry ([1+(1-0.37)*(D/E)

0.61

Risk Free rate 2.80

Risk Premium 6 From Exhibit

ng

WACC=
D/V*COD+E/V*COE

5.66
5.32
5.32
6.47
5.31
5.28
6.61
5.40
6.22
6.90

5.85
Post Tax COD in % ( tax rate of 37% ) =
Pre Tax COD*0.63
Cost of Debt
Comparable firms in food processing

Company Total Debt Total Equity Total Value D/V

Badger Meter 89 723 812 0.110

Dresser Rand 1287 4549 5836 0.221
Flowserve 1200 10767 11967 0.100
Honeywell 8829 74330 83159 0.106
Index 774 5933 6707 0.115
Measurement Speci 129 944 1073 0.120
Mettler Toledo 413 7154 7567 0.055
Wendell Instrume 0 230 230 0.000

Average D/V Value 0.103

Cost Of Equity for food processing firm

Bottom up Beta
To compute this beta we need division /Pvt Company
Comparable firms/ Equity Beta (Levered beta)
Equity Beat into asset beta ( Unlevered beta )

Equity beta = Asset beta [ 1+ (1-t) *D/E]

Asset Beta = Equity beta / [ 1+ (1-t) *D/E]

Company Total Debt Total Equity Equity Beta

Badger Meter 89 723 1.06

Dresser Rand 1287 4549 1.40
Flowserve 1200 10767 1.30
Honeywell 8829 74330 1.25
Index 774 5933 1.15
Measurement Speci 129 944 1.35
Mettler Toledo 413 7154 1.1
Wendell Instrume 0 230 0.52
 Average Asset Beta of
sector

Company Total Debt Total Equity Equity Beta

Equity Beta of Chestnut

Chestnut Food 461 1840 0.90 Food

COE of Food Division

Company Equity Beta Cost Of Equity

Badger Meter 1.06 9.16

Dresser Rand 1.40 11.20
Flowserve 1.30 10.60
Honeywell 1.25 10.30
Index 1.15 9.70
Measurement Speci 1.35 10.90
Mettler Toledo 1.1 9.40
Wendell Instrume 0.52 5.92

Avg levered Beta 1.14

Average cost of equity 9.65

WACC for Comparable firms in food processing

Post Tax
cost of
Company Debt Cost Of Equity D/V E/V

Badger Meter 2.90 9.16 0.11 0.89

Dresser Rand 4.10 11.20 0.22 0.78
Flowserve 2.90 10.60 0.10 0.90
Honeywell 2.08 10.30 0.11 0.89
Index 2.58 9.70 0.12 0.88
Measurement Speci 0.00 10.90 0.12 0.88
Mettler Toledo 0.00 9.40 0.05 0.95
Wendell Instrume 0.00 5.92 0.00 1.00
 Average WACC

Levered Beta for Food processing division

Average levered Beta of

comp firms 1.14
Avg D/E of Comp firms 0.12
Tax rate 0.37
Un;evered Beta for industry 1.06

Relevering , Levered beta for

the division 1.23
 Post Tax COD in % ( tax
D/E Company Bond Rating Applicable COD from exbit 3 in case Pre Tax COD

0.12 Badger Meter BBB minus 4.6 2.898

0.28 Dresser Rand BB 6.5 4.095
0.11 Flowserve BBB minus 4.6 2.898
0.12 Honeywell A 3.3 2.079
0.13 Index BBB 4.1 2.583
0.14 Measurement SpecBBB* 4.1 2.583
0.06 Mettler Toledo A* 3.3 2.079
0.00 Wendell Instrum NA 0 0

0.12 Average COD 3.8125 2.401875

Asset Beta

0.98
1.19
1.21
1.16
1.06
1.24
1.06
0.52
 1.05
Levered or EB of chestnet food = Asset Beta of
food industry ([1+(1-0.37)*(D/E)

0.61

Risk Free rate 2.80

Risk Premium 6 From Exhibit

ng

WACC=
D/V*COD+E/V*COE

8.47
9.63
9.83
9.43
8.88
9.59
8.89
5.92
8.83
Post Tax COD in % ( tax rate of 37% ) =
Pre Tax COD*0.63
 WACC for Food Processsing and Instrument Division

Particular Food Processing Instrument

Average D/V 0.24 0.1

Tax Rate (marginal) 0.37 0.37
Average D/E 0.32 0.11
Estimated Credit rating 4.76% 3.81%
After Tax cost of Debt 2.90% [=4.76 (1-0.37)] 2.40% [=3.81 (1-0.37)]
Risk free rate 2.80% 2.80%
Risk Premium 6% 6%
Levered Beta 0.61 1.24
Cost of Equity 6.46 10.24
D/V of Chestnut 0.20 0.20
E/V of chestnut 0.80 0.80
WACC 5.748 8.772

Conclusion:
1)As a statement seeing the WACC for Chestnut food processing as 5.74 is doing good when
compared to instrument division as 8.772.

2)Chestnut Food should not consider WACC 7% as whole for both division in business analysis
perspective.

3)It is best decision to retain the Chestnut Food product division.

nt Division

Value in percentage