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Calaveras Vineyards Case Solution

Solution Id Length Case Author Case Publisher
2484 1603 Words (8 Pages) Robert F. Bruner Darden School of Business : UV0255
This solution includes: A Word File A Word File and An Excel File An Excel File

In her role as senior vice president of Goldengate Capital, Anne Clemens is a wealth management expert. In March of 1994, she received a finance proposal from Tom Howell of NationsBank for the acquisition of Calaveras Vineyards. Because Stout PLC has opted to focus on bigger breweries rather than smaller ones, Calaveras Vineyards is being sold. In two more Howell projects, Goldengate has benefited from Clemens' involvement. It's up to Clemens to determine if Goldengate Capital's $2 million term loan and $2.5 million revolvers under Calaveras Vineyards management is a good financial decision. For her to come up with an effective counteroffer, she had to assess the terms of the loan first. Calaveras Vineyards first opened its doors in 1883 to provide wine to the Catholic Church and began commercial production in the 1950s. Despite several ownership changes, the Calaveras brand and market position have maintained their strength throughout time.

Following questions are answered in this case study solution

  1. Perform a discounted cashflow valuation for Calaveras Vineyards.

  2. Would you advise Dr. Martinez to purchase Calaveras’ at the proposed price? Why or why not?

  3. Does Dr. Martinez have any particular competitive advantage in running Calaveras relative to others, including the current owners?

  4. If Dr. Martinez buys the company, how would her incentives change? Does that impact your answer to C above?

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Case Analysis for Calaveras Vineyards Case Solution

1. Perform a discounted cash flow valuation for Calaveras Vineyards.

Exhibit TN3

Discounted Cash Flow Valuation, "Base Case"

Consistent with Anne Clemens' Forecast

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium or Discount on the Anticipated EBIT

 

0%

 

 

 

 

 

 

 

At Closing

1994

1995

1996

1997

1998

EBIT

 

 

 

$930

$1,085

$1,224

$1,301

$1,420

EBIAT (T=37%)

 

 

586

683

771

819

895

+Depreciation

 

 

116

166

216

266

316

-Expenditures On Capital

 

-$4,122

-250

-250

-350

-350

-350

+Amortization of Organizational Costs

 

 

60

60

60

60

60

-Additions to  Net Working Capital

 

 

(520)

(302)

(201)

(215)

(151)

FREE CASH FLOW

 

($4,122)

(7)

358

496

580

770

Terminal Value (WACC=12%, g=4.04%)

 

 

 

 

 

10,061

Total Cash Flow

 

($4,122)

(7)

358

496

580

10,831

Internal Rate of Return (FCF)

 

26%

 

 

 

 

 

Discount Rate

 

13.0%

 

 

 

 

 

Present Value of Assets

 

$6,852

 

 

 

 

 

Debt at Closing

 

3,122

 

 

 

 

 

Value of Equity

 

3,730

 

 

 

 

 

Equity Investment at Closing

 

1,000

 

 

 

 

 

Net Present Value

 

$2,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price Growth =

0.02

 

 

 

 

 

 

2. Would you advise Dr. Martinez to purchase Calaveras’ at the proposed price? Why or why not?

In my opinion, Dr. Martinez must give some significant consideration to the prospect of purchasing Calaveras Vineyards. My experience has led me to think that this is the case. According to the findings of both of our DCF and APV studies, the price that has been offered for Calaveras Vineyards, which is $4.122 million, is significantly lower than our projected values for the company, which are respectively $5.586 million and $6.249 million. The price that has been offered for Calaveras Vineyards is significantly lower than our projected values for the company. Calaveras Vineyards is being sold for the price of $4.122 million, according to the price that has been provided. The disparity in value that exists between these two numbers indicates that they are far off from one another. 

These numbers are in line with the range of values suggested by the plan that was provided by Tom Howell, which said that the assets of Calaveras had a fair market value of between $5 and $7 million. On the other hand, the true value of Calaveras may be determined not only by the quantitative qualities but also by a wide range of extra elements in addition to those that have previously been described. These additional factors might include both internal and external aspects of the product. There has been a total of three changes in ownership in less than 10 years, and there is a possibility that there may be the fourth change shortly. This should give some investors cause for worry. This is particularly true when one considers the fact that the marketing departments have been entirely reorganized in conjunction with each change of ownership. 

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