Calaveras Vineyards Case Study
Lionell C. Henderson
Northwood University MBA 634
Measurement II (Evening)
Adam Guerrero, PhD
OUTLINE
Introduction Executive Summary Analysis Solving for CAPM Weighted Average Cost of Capital Free Cash Flow Growth Rate Perpetuity Terminal Value Liquidation Value Present Value Conclusion Recommendation …show more content…
During the 20th century its production increased to include table wines at which it sold to restaurants and retailers. The vineyard had a number of prior owners over a 9 year period, before a British conglomerate Stout PLC expressed interest in the vineyard. Its marketing strategy and positioning consisted of capital improvements, managing quality control, and market segmentation. To accomplish this goal Dr. Lynna Martinez was acquired as Stout PLC’s vice president and general manager. She has over 7 years of experience in the wine industry ranging from winemaker to technical director. As Vice president/general manager, Dr. Martinez then acquired the services of Winston-Fendall a West Coast marketer to strengthen their accounts receivable. The contract basically stated any uncollected debt from accounts receivables after 90 days they would repay to Calaveras. Now, Mrs. Clemens has to decide rather quickly if the new company can sustain its growth in order to repay the loan.
Analysis
Let’s begin the analysis process by solving for the future cash flows. But first, I need to calculate the market debt/equity value. Using the equation: D / E, and the valuation information provided from page 7 of the case study, I can derive the following.
D/E = .277 + .048 + .156/3 = …show more content…
It is unrealistic to assume that wine sales will grow forever at any cost. If this was true sales would soon outgrow the production capacity so there should be some growth limits. One last point I wish to discuss is the Terminal value. Since the growth rate is such an important factor for it assumes the real growth rate and inflation to be true and if it is not a realistic value, then, how can the free cash flows in perpetuity values be correctly estimated. So, let’s calculate the terminal value and see.
Growth Rate
First I need to calculate the growth rate: g = (1 + π)* (1 + greal) ^-1 = (1.02)*(1.02) ^-1 = .0404 = 4.04
Perpetuity Terminal
Lionell C. Henderson
Northwood University MBA 634
Measurement II (Evening)
Adam Guerrero, PhD
OUTLINE
Introduction Executive Summary Analysis Solving for CAPM Weighted Average Cost of Capital Free Cash Flow Growth Rate Perpetuity Terminal Value Liquidation Value Present Value Conclusion Recommendation …show more content…
During the 20th century its production increased to include table wines at which it sold to restaurants and retailers. The vineyard had a number of prior owners over a 9 year period, before a British conglomerate Stout PLC expressed interest in the vineyard. Its marketing strategy and positioning consisted of capital improvements, managing quality control, and market segmentation. To accomplish this goal Dr. Lynna Martinez was acquired as Stout PLC’s vice president and general manager. She has over 7 years of experience in the wine industry ranging from winemaker to technical director. As Vice president/general manager, Dr. Martinez then acquired the services of Winston-Fendall a West Coast marketer to strengthen their accounts receivable. The contract basically stated any uncollected debt from accounts receivables after 90 days they would repay to Calaveras. Now, Mrs. Clemens has to decide rather quickly if the new company can sustain its growth in order to repay the loan.
Analysis
Let’s begin the analysis process by solving for the future cash flows. But first, I need to calculate the market debt/equity value. Using the equation: D / E, and the valuation information provided from page 7 of the case study, I can derive the following.
D/E = .277 + .048 + .156/3 = …show more content…
It is unrealistic to assume that wine sales will grow forever at any cost. If this was true sales would soon outgrow the production capacity so there should be some growth limits. One last point I wish to discuss is the Terminal value. Since the growth rate is such an important factor for it assumes the real growth rate and inflation to be true and if it is not a realistic value, then, how can the free cash flows in perpetuity values be correctly estimated. So, let’s calculate the terminal value and see.
Growth Rate
First I need to calculate the growth rate: g = (1 + π)* (1 + greal) ^-1 = (1.02)*(1.02) ^-1 = .0404 = 4.04
Perpetuity Terminal