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HBS Case Diageo Plc
- Essay length: 3623 words
- Submitted: 24/03/2011
The first 200 words of this essay...
Capital Structure Analysis
RSM433 Advance Corporate Finance
Jingtian Huang 996014272
Wei Jiang 994633624
Yizhou Shen 996563801
Tian Liu 996582764
Xinyu Ma 996127613
Table of Contents
Executive Summary 3
Capital Structure Analysis 3
Historical Capital Structure 3
Trade-Off Theory 3
Application for Trade-Off Theory 3
Monte Carlo Recommendation 3
Pillsbury and Burger King 3
Diageo Plc is a London based consumer goods company. Diageo was formed from the merger of Grand Metropolitan and Guinness in November 1997. The business split among four segments: Spirits and wine, Guinness Brewing, Pillsbury and Burger King.
Consider the fact that Grand Metropolitan and Guinness are both conservative in its leverage ratio which is far below industrial average. Historically, Diageo Plc has proven as a company who take a risk neutral approach in managing its right-hand-side of balance sheet.
By applying trade-off theory, which suggests firm should seek out an optimal structure that best balances tax benefit to expected distress cost, we have discovered that Diageo is suitable for taking on more debt. It has a lower market
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