Dan and his brother Nick grew up watching their dad make the best homebrewed craft beer using an old family recipe. They have decided that it is time to mass-market the beer, expecting them to be especially popular around the holiday season. They have already chosen a name for their new company: the DN Brewing Company.

Dan and Nick have come to you and asked you for help in determining the feasibility of their new venture. They would like you to prepare a report that incorporates a break-even analysis and any other analysis you deem necessary given the information provided. You should also include a qualitative discussion of the risks and opportunities of the new venture. The information they provided is found in Exhibit I.

Required:

Prepare the report for Dan and Nick showing your calculations.

Exhibit I Additional Information

-It is estimated that approximately $100 million is spent annually by consumers on craft beer worldwide.

-DN Brewing believes that with its superior recipe, it can obtain somewhere between 0.5% and 2% of the worldwide market. Based on its market research, DN Brewing expects the probabilities of the market potential to be as follows: o0.5% of worldwide market 15% o1% of worldwide market 60% o2% of worldwide market 25%

-DN Brewing intends to sell each growler of craft beer for $10.00 to retailers -Direct materials are expected to be $2 per growler and direct labour of $1 per growler. The packaging is expected to cost $1.50 per growler.

-DN Brewing will incur fixed expenses of $500,000 annually. This includes the rent on a building located in the downtown core and a fixed distribution fee to retailers.

-DN Brewing will not be tax exempt. It has a tax rate of 30%. In order to make the project feasible, DN Brewing wants to ultimately make an after-tax annual profit of $130,000.