In 2006, Anheuser-Busch Companies Inc. (BUD) engaged in the production and distribution of beer worldwide, operating through four business segments: domestic beer, international beer, packaging, and entertainment. The domestic beer segment offers beer under Budweiser, Michelob, Busch, and Natural brands in the United States, in addition to a number of specialty beers that include non alcohol brews, malt liquors, specialty malt beverages, and energy drinks. The international beer segment markets and sells Budweiser and other brands outside the United States and operates breweries in the United Kingdom and China. In addition, the international beer segment negotiates and administers license and contract brewing agreements with various foreign brewers. The packaging segment manufactures beverage cans and can lids for drink customers, buys and sells used aluminum beverage containers, and recycles aluminum containers. The entertainment segment owns and operates theme parks. In 2005, Anheuser-Busch reported the following segment revenues and net income:

Assume that you have just been charged with the responsibility for evaluating the divisional cost of capital for each of the business segments.
a. Outline the general approach you would take in evaluating the cost of capital for each of the business segments.
b. Should the fact that $ 1,156 million of the packaging segment€™s revenues come from internal sales to other Busch segments affect your analysis? If so, how ?

Transcribed Image Text:

Dollar Amount (Millions) for 2005 Gross sales Income before International Beer Domestic Beer Entertainment 10,121.00 2,29340 $864.00 70.10 $1,83150 120.40 $904.40 215.10 income taxes Equity income Net income 147.10 $433.70 S 1,421.90 $ 74.60 S133.40