Essay on Calaveras Vineyards

In order to assess Calaveras’ value, I calculated the free cash flow from 1994 to 1998. The free cash flow from each year derived from adding Earnings before Interest and Taxes,

The winery industry can be categorized into red and white wine segments. The red wine segment, measured by tonnage of varietals crushed, has grown at a compounded annual rate of 4.7% for 10 years from 1989 to 1998, and a year over year growth rate of 8.2% from 1998 to 1999. Judging by the strong growth rate experienced in the red wine segment, it is reasonable to conclude that the red wine segment is in the growth phase of the life cycle model. In addition, production of red wine varietals which are relatively unknown such as syrah and sangiovese nearly doubled in a year from 1998 to 1999. The white wine segment, however, is at the mature phase of its life cycle as the segment shrunk slightly by 0.42% from 1998 to 1999. Overall, the industry is still at the growth stage lead by growth in the red wine segment.

The appropriate discount rate was calculated using WACC formula as shown in the ‘WACC’ exhibit using the following assumptions:

Free cash flow is then estimated from the net income by subtracting capital expenditures, which are estimated to be less than $1 million for 1992. Additionally, there are several additional expenses for 1991 that I believe are ignored by Goldman Sach’s estimate. The first is the potential clean-up costs from the spill in the New Jersey plant, estimated at $300,000. However, weighing other possible outcomes, I estimate the cost to be $374,000, occurring by the end of 1991.

1. The first step to evaluating the cash flows is to conduct the depreciation tax flow analysis. Depreciation is not a cash flow, but the depreciation expense lows the taxes payable for the company. As a result, the tax effect of deprecation needs to be calculated as a cash flow. There are two depreciable items on the company's balance sheet the building and the equipment. The equipment is known to have a seven year depreciable life, which will be assumed to be straight line. The building is also assumed to be subject to straight line depreciation, this time of forty years. The tax saving reflects the depreciation expense multiplied by the tax rate, which in this case is assumed to be 28%. The following table illustrates the tax effect in future dollars of the depreciation expense:

It should be noted that an income approach could have also been used. Using a determined market discount rate of 6% and current year revenue of $3,028,000 at a four year discounted rate, the value would have been $12,040,548. Because adequate market information was available to make a more accurate estimate of the fair value, this is the estimate that was chosen.

Since this project is a going concern, the levered terminal and present values are calculated using the weight average cost of capital (WACC) as the discount rate, which we calculate to be 16.17%.

NORTHERN NAPA VALLEY WINERY Period Month-Year Sales MA CMA Snl Factor Ad trend est Snl Inx Forecast 1 Jan-88 6,632 7414.480161 0.895433355 6639.172848 2 Feb-88 6,534 7495.930161 0.855674227 6414.07425 3 Mar-88 6,675 7577.380161 0.915057445 6933.738129 4 Apr-88 6,692 7658.830161 0.924270145 7078.828067 5 May-88 6,984 7740.280161 0.942241926 7293.21649 6 Jun-88 7,133 7821.730161 0.938433481 7340.173459 7 Jul-88 6,385 7,727 0.826274271 7903.180161 0.887321174 7012.659097 8 Aug-88 7,364 7,760 0.948999646 7984.630161 0.732715692 5850.463814 9 Sep-88 7,171 7,816 0.917432953 8066.080161 0.960270745 7745.620807 10 Oct-88 8,690 7,906 1.09918257 8147.530161 1.09169761 8894.639202 11 Nov-88 10,299

The free cash flow method is used to gauge “a company’s cash flow beyond that necessary to grow at the current rate… [to ensure companies] make capital expenditures to continue to exist and to grow” (Drake, n.d.). Calculation of free cash flows utilizes various components, including a firm’s value, cash flow forecasts, a firm’s capital structure, the cost of capital, and/or discounted cash flows.

Because, human(s) being(s), health, may depend upon crop growing, living organism multiplicity. Should, savor gardening, from old massive habits. Allowing, opportunities, of vast-full new efforts to grow a garden, continue being a gardener.

From 2012 to 2017, the state of California had to be deal with the worst drought in the last 1000 years. This drought was one of the longest drought in California’s history. The precipitation over the course of the five years was a record low and the decrease in the snowpack lead to the surface water reservoirs to start declining at a higher pace. This change in reservoirs caused the state governor to call for an executive action to call for a cutback in the towns’ and cities’ water usage by 20% (Sheikh, Cody, & Stern, 2014). These policies and actions have tried to stabilize the water reservoirs and allow for society to continue to work efficiently, but the drought lead to huge economic losses in multiple industries across the state. One

On September 9th, a group of friends (Charlotte Fung, Renee Swartz, and Anthony Dilernia), and I travelled to Fennville, MI to tour Fenn Valley Vineyards. For the tour, our guide was Todd, who is a graduate from Michigan State University with a degree in horticulture. Besides being a tour guide at Fenn Valley, Todd is also the Vineyard Manager, his job responsibilities are trying to get the highest quality grape, obtain the highest grape yield given the limitation during the growing season and try to improve the leaf to grape ratio.

Free cash flows should be discounted at the firm 's weighted average cost of capital to find the value of its operations.

Discounted Cash Flow Valuation is based upon the notion that the value of an asset is the present value of the expected cash flows on that asset, discounted at a rate that reflects the riskiness of those cash flows. Specify whether the following statements about discounted cash flow valuation are true or false, assuming that all variables are constant except for the variable discussed (Rubinstein, 2003). As described by Emhjellen and Alaouze (2003), the discounted net cash flow is one of the most popular tool used for finance valuation.

r denotes the net discount rate. Deduction for depreciation would cut down the firm’s tax charge at time t by τtD(x), hence, the present value of the firm’s tax saving is given by