Question

Please help solving the 3 questions

It is now a very fast 10 months later and to coincide with the grand opening of Cellar Door, complete with an orange front door of course, Orange Wines would like to prepare a press release for customers promoting the Cellar Door experience. Orange Wines estimates an initial investment of $95,000 is required for vintage (picking the grapes and producing the wine) and equipment to ensure the release of their 2020 Noble Rascal (a Pinot Noir), to be made available at Cellar Door for 12 months. They know it's a huge drawcard to Cellar Door as the staff handpicked, foot stomped, basket pressed and racked the grapes before maturing them in oak, blending and bottling the wine, to present it to you at Cellar Door – so it's definitely worth trying! As it happens this pretty spot in the Adelaide Hills is the only location where this drop is available. Orange Wines charges a $5 premium wine tasting fee per person and expects 950 paying customers per month. In addition, they estimate that on average 50% of customers will purchase a bottle of the cellar door for $32 per bottle. To increase patronage and promote the region, Orange Wines will also invite a popular local chef to offer a dining experience with meals paired with the 2020 Noble Rascal. There are 4 dining sessions running at the end of each quarter for 12 customers at each dining session. The dining package is expected to bring a cash inflow of $180 per customer and each event is expected to be sold out. Orange Wines Income Statement (financial year ending 30 June 2019) 2019 2018 2017 2016 '000 '000 '000 '000 Sales 989 684 555 420 (less) Expenses (499) (392) (313) (252) Net Profit 490 292 242 168 2017 '000 Orange Wines Balance Sheet (as at 30 June 2019) 2018 '000 Total Assets 522 446 Total Liability Total Equity 169 '000 389 277 272 313 209 117/

1) Use EXCEL to calculate the net present value of the proposed 2020 Noble Rascal release. Assume that increases in profits are realised at the end of each month. The cost of capital for Orange Wines is 4.73% per year compounded monthly.

2) To gauge the viability of the Cellar Door press release, you need to know how long it will take for Orange Wines to completely recoup the initial outlay of $95,000. You can’t be bothered doing more calculations (who can blame you?) so you produce a rough visualisation of your analysis that will give you the upper limit on the time it will take to completely recoup the initial outlay made by Orange Wines. Include the graph here and the infographic where indicated.

3) As a sign the future is looking bright for Orange Wines, they just received the fantastic news their 2019 Noble Rogue vintage has scooped the pool at the recent Wine Industry Awards (Best Vintage 2019, Critic’s Choice and Best Oxymoronic Wine Name) with a combined prize money of $50,000. Rather than spend the prize money, Orange Wines have decided to invest it as part of their future funds. The prize money is invested at an interest rate of 2.5% per annum compounded monthly for a 3 year period. Orange Wines have also committed to investing regular deposits of $5,000 in a second investment account that attracts 2.5% per annum compounded quarterly. Orange Wines wants to combine the maturity of the two accounts in 3 years’ time. If they have at least $100,000 they will use it to grow the cellar door experience with an upgraded outdoor area and interactive wine tasting tours.

Answer 1

1)

Month_BC Cost of Capital 4.83% NPV $ 83,928 Cashflow_BC 0 $ -95,000 1 $ 19,950 2 $ 19,950 3 $ 19,950 4 $ 22,110 5 $ 19,950 6 $ 19,950 7 $ 19,950 8 $ 22,110 9 $ 19,950 10 $ 19,950 11 $ 19,950 12 $ 22,110 im in 7 Premium fees $ 3 Bottle selling $ Dinning $ 4,750 per month 15,200 per month 2,160 Per Quarter

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