Memo: Dessert Valley brewery Limited: Ferguson’s Proposal Harvard Case Solution & Analysis

Memo: Dessert Valley brewery Limited: Ferguson’s Proposal Case Solution

1          Results from Financial Analysis

            The analyst used several techniques to find out the feasibility of the Ferguson Proposal. These techniques include financial modeling, valuation of currency fluctuations through interest rate parity, and cost benefit analysis. Moreover, the analyst also used the concept of time value of money in order to identify the project in more appropriate manner.

1.1        Financial Modeling

            The analyst used this technique and evaluated the project of Ferguson’s Foods; moreover, the analyst used the given data. The data indicated that Desert Valley (DV) would receive an upfront fee of 150,000 to start the project.

            Afterwards, the company specified a range of projected demand of Ferguson foods. Moreover, the company made several terms and conditions with the project; the first condition was that the company will not be responsible for any excess inventory and the company can order additional goods and DV will be restricted to fulfill that order with in three working days.

            Furthermore, the company will give a 15% discount on the excess production. Regardless of all the terms and conditions, the analysis suggests that the company can earn up to 894,000 CD from the proposal till 2018.

            Moreover, when the analyst discounted the profits from the proposal, the findings revealed that the company could easily earn almost 1.6 million CD over the said timeframe. Therefore, it can be concluded that Ferguson’s proposal is quite lucrative and can add significant value to the company.

1.2        Annual Domestic Sales

            From the analysis, the investigator saw that the selling prices for beer would remain same until 20X10. Moreover, the demand was given in the data and using that data, the analyst reached the annual domestic sales of the company.

            Afterwards, it has been noted that the company can earn almost 37 million in 2013, 37 million 2014, 42 million in 2015, and so on. However, in the last year, the company can earn almost 55 million CD. Furthermore, these sales are not interlinked with the project.

            Therefore, there will be no impact of the project on these sales. Moreover, the analyst also saw that the company would sell almost 1.6 million cases of the product from 2013 to 2020. However, these projections were used by the given data and finally, the analyst also calculated the contribution margin of domestic sales, which was calculated as 35% of the sales.

            Afterwards, the findings revealed that the company will be able to earn almost 13 million CD as contribution margin in 2013, while the contribution margin will follow the steady track of growth and will become almost 20 million in 2020.

            Moreover, for better understanding the analyst also calculated the present value of the CM and found that the company can easily earn 10 million CD as CM in 2013, while it will grow to almost 4.4 million CD in 2020. However, the discounting has been made on 20% interest rate given in the data..................

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