Newwineryinvestmentproject

JuanFresnoandhisfamilyarethinkingaboutconstructinganewwinerywithintheirproperty
inValdepeas,Spain.Uptonow,theyhavebeensellingtheirgrapeproduction,32.500kgper
year,toacooperativefactoryaftereveryharvest,atapriceofaround1,5/kg.
BeforetakinganydecisionJuansfatheraskshimtoperformaneconomicassessmentofthe
wineryproject.
AccordingtothesizeandoutputofFresnosvineyard,Juanconsidersthattheywillbeableto
producearound40.000bottlesof0,75literseach.Withthisestimation,theinvestmentbudget
forthisprojectis:

CONCEPT
Newcompanysetup
Pieceofland
Industrialpremises
Facilities
Machinery
Engineeringproject
Licenses
Marketing
Workingcapital

TotalInvestment

COST
3.000
0
500.000
50.000
250.000
40.000
12.000
6.000
30.000

891.000

Table1.Investmentcosts

Inordertostudyhowprofitableishisproject,Juanhastogenerateanexcelsheetwithallcash
flowslinkedtothebusiness.
Annualincomeswillcomefromtwoinputs:salesofwineandsalesofwasteproducts.Itisalso
necessarytotakeintoaccountthat,usingtheirowngrapesforproducingwine,Juansfamily
will not receive the money coming from grape production sales. The next table shows these
concepts:

CONCEPT
Winebottlessale
Wasteproductssale
Formergrapeproductionsale

QUANTITY UNIT
40.000 bottles
4 Tons
32.500 kg

UNITPRICE
11
1,000
1,5

TotalRevenues

TOTAL
440.000
4.000
48.750

395.250

Table2.Annualrevenues

Annualexpensesaremainlystaff,6persons,andthecostoftherestofthegrapesnecessaryto
reachtheproductionobjective,around17.500kg.Havingconstructedanewwinery,itwont
benecessarytokeeponhiringthewarehousethefamilyisusingnow.Table3depictsthese
expensesandsomeminorones.

CONCEPT

QUANTITY
UNIT
6 workers
17.500 kg

Staff
Grapes
Additives

UNITPRICE

TOTAL
145.000
1,5 26,250
6,000

Energy
Maintenance
Administration
Bottlesandlabels
Formerwarehousecost

4,500
2,300
3,000
10,000
6,000

Totalexpenses 191.050
Table3.Annualexpenses

Itisconsideredthatthedepreciation(amortization)ofmainprojectshardwareisdividedinto
10years,seetable4.

CONCEPT
Industrialpremises
Facilities
Machinery
Site

YEARS
10
10
10
10

ANNUALQUANTITY
50.000
5.000
25.000
0

Total

80.000

Table4.Hardwaredepreciation

And, finally, with an expected winerys lifetime of 20 years, table 5 shows the financing
parametersthatJuanwilltakeintoaccounttocalculatetheprojectsprofitability.

CONCEPT
StockholdersEquity
Financing
InterestRate
Loanpaybackperiods(years)
DiscountRate

%
50%
50%
10%

QUANTITY
445.500
445.500
10

10%

Table5.Financingparameters

Itisalsoexpectedthatpricesforbothsalesandpurchaseswillrisearound3%annually.

CONCEPT
Salespriceannualvariation
Purchasespriceannualvariation

%
3%
3%

Table6.Pricesvariation

Usingallthatdatainprevioustables,Juanhastocreateacashflowtable,duringthe20year
lifetime and calculate: Net Present Value (NPV), Internal Rate of Return (IRR) and Payback
period(PB).

UseMSExcel2010

CONCEPT
Investment
Revenues
Expenses
(Amortizations)

0
####

####
####
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PBIT
####
FinancialExpenses
####
PBT
####
Taxes
####
PAT
####
Amortizations
####
ANNUALRESULT #### ####
DISCOUNTEDRESULT #### ####
ACCUMULATEDRESULT #### ####
0
1

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YEAR
10 11
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20

Table7.Cashflowexceltableexample

SensitivityAnalysis
Once the investment parameters have been calculated, Juans father wants to know how
sensitive their project is when the main inputs change. He is mainly concerned about
StockholdersEquitypercentage,discountfactorandbottlesalepricevariations.
For that purpose, Juan creates a table varying those inputs from 50% to +100%, in other
words, studying a range from one half to double values, in steps of 10%. There will be 16
valuesintotal.
With these data series Juan will have to construct three graphics, with three lines each,
showinghisfatherhowsensitivetheinvestmentprojectistothesefactors.

UseMSExcel2010
1
PARAMETERS
SOTCKHOLDERSEQUITY
DISCOUNTRATE
BOTTLESALEPRICE

50% 40%

30% 20%

25%
5%
5,5

35%
7%
7,7

30%
6%
6,6

40%
8%
8,8

6
BASE
CASE
45% 50%
9% 10%
9,9 11,0
5

10

11

12

13

14

15

16

10%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

55% 60% 65% 70% 75% 80% 85% 90% 95% 100%
11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
12,1 13,2 14,3 15,4 16,5 17,6 18,7 19,8 20,9 22,0

Table8.Parameterschangestableexample

Question:Whatwouldhappenif,becauseofproductiontiming,theFresnofamilyhastowait
for3yearsafterthewineryisconstructedtoselltheirproofwine(vinodereserva)production?
WhatchangesshouldJuanmakeishisexceltables?