Calaveras Vineyards Harvard Case Solution & Analysis

Forecast needs many assumptions along with supposition and these should be as practical as possible for the forecast to have a fair and good value.

Sales analysis data indicates some important findings. These are as follows:

  • Total sales of 1993 declined by 28% as compared to 1992.
  • Sales of Sauvignon Blanc (w) reported massive increase of 116% in 1993 when before there was a negative growth.
  • Sales of Gigantic Airlines (w,r) also showed exciting increase of 113% in 1992 as compared to 1991.
  • Overall growth rate of sales in 1990 as compared to 1991 increased by 5%.

Note: See all relevant details at Exhibit 4.

Growths of forecast case sales expect to inflate by the following rate.

Year Rate (%)
1995 13
1996 12
1997 6
1998 8

Initially, growth rate from 1995 to 1998 seems to be regressive after the year 1998 and management assumes that 2% constant growth should be attainable and feasible. Minimum supply was 16500 cases to Gigantic Airlines (w,r) in 1994.

Management of CALAVERAS also considered the following factors,

  • Sales trend
  • Inflation of both general and specific
  • Demand
  • Plant production capacity and yield per acre

Forecast income statement provides information about the pay back interest loan. In 1994, the interest coverage ratio was 3 and it moved up to 8.2. The higher the ratio, the more confident are debt holders to receive their interest.

Currently Calaveras vineyards would enter into two new long terms contract to secure its continuous supply of grapes from Stout PLC.

Anne Clemens needs to identify fair value of net worth of the business, if it is liquidated force fully. She estimated that land of vineyard may sell within the range of 5000 to 10000 dollars. The net value of business calculated at exhibit 9 assuming three different levels of $5000, $10000 and $7500 resulted to be $4.1, $5 and $4.6 million respectively.

Solvency and liquidity ratios analysis indicates that there was a huge decrease in current assets and working capital as compared to previous year. Net present value of project is positive, therefore, it should undertake this project and go for investment according to valuation under discounted cash flows techniques.

(Exhibit 10) However, solvency ratios analysis shows that interest rates in the proposal are at end limit of expectations.

Conclusion

Dr. Lynna Martinez, who was vice president and general manager of the Calaveras for Stout PLC as well as operations manager, Peter Newsome decided to participate in the investment. ‘Winston Fendall’ who is an established wine marketing company that would be positioning Calaveras as its flagship account would manage sales and marketing side of things. As customers are moving towards high quality wine so Calaveras had a good opportunity to implement high premium strategy and achieve its target return and easily pay interest as well as loan obligation. If Calaveras managed its supply chain management properly so there would be a good opportunity to enter in new areas of the entire market.

NationsBank scheme provided good opportunity to Goldengate Capital to invest in profitable project of Calaveras Vineyards, who had the potential to acquire new market share in the industry. Because of forecast balance sheet, Calaveras seems capable to repay its debts easily. It would be financially viable to negotiate on terms of higher interest as proposed in terms of contract.

Appendices:

Exhibit 1: Market segments according to demand:

Sr. No. Market Segment

$

  1. 1.
Low Price

Under 2.75

  1. 2.
Economy

2.76 – 4.25

  1. 3.
Popular

4.26 – 5.75

  1. 4.
Premium

5.76 – 7.50

  1. 5.
Super premium

7.51 – 10

  1. 6.
Ultra premium

10.01 and over

Exhibit 2: Long term grapes supply contracts...................................

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