Question
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
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 come up with 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.
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