1. Estimate the annual cash flows for the brewpub project. Use the best case scenario. To do this, you will need to calculate the annual revenues and annual expenses for the 10- year project, any changes in net working capital, and any changes to capital expenditures. Describe all assumptions and calculations you used to arrive at the final cash flows.

2. Calculate the NPV of the project given the information presented using the best case scenario. Should Samantha and Grant go ahead with the brewpub investment? Why or why not?

3. What would be the impact on NPV if the worst case scenario occurs? Would this alter Grant and Samanthas decision whether to invest in the brewpub? Describe how you found this result (also show in the spreadsheet).

4. Suppose they are operating under the best case scenario and they decide that in year 5 they would like to do major renovations to the restaurant (a capital expense). They figure this will cost an additional $1,000,000 in year 5. Along with the renovations, they figure they could increase the price of the beer to $7 per pint and keep it at that price for the duration of the project. How do these changes impact NPV and IRR? Is it worth it for the pair to go forward with the renovations? Describe how you found this result (also show in the spreadsheet).

5. Would there be a significant impact to Samantha and Grants brewpub decision if there were a change in the cost of capital? Describe how you found this result (also show in the spreadsheet).

6. Are there any other issues that you think might influence the pairs investment decision? What, if anything, have Samantha and Grant not considered in their capital budgeting analysis?

No SIM Done 2:32 PM Investing in a Brewpub- A Capital Budgeting Analysis.pdf International Research Journal of Applied Finance ISSN 2229-689 Case Study Series December 2013 Abstract Two recent college graduates own a restaurant and want to decide whether to invest in a brewpub system, which would allo he pair to sell beer on tap to their customers. The business owners must complete a thorough cash flow analysis of their planned investment using the concepts of operating cash flows, working capital investment and capital expenditures. They need to hav keen understanding of relevant versus non-relevant cash flows, Further, they must use these cash order to come up with the net present value (NPV) and internal rate of return (IRR) of the investment under different realistic business scenarios. The pair also must use sensitivity analysis to see how their investment decision may or may not change as a result of varying cost of capital. In the end, the pair needs to decide whether to invest in the brewpub in light of their full anal The Case amantha Myers and Grant Patrick graduated from college seven years ago. Since then, they opened a casual. American-fare 80-seat restaurant. Explore Cafe. close to their college campus Their clientele mainly consists of undergraduate and graduate students from the college (thus a lot of their business falls outside of the summer months), and an enthusiastic group of local s who love to come to the restaurant on a regular basis year-round. Currently the restaurant is BYOB, meaning, the restaurant does not se alcohol but allows customers to bring in their own bottles of wine and beer for a small "corkage" fee. After much consultation and market research (costing them roughly S2,000 and considerable time and effort), Samantha and Grant decided that the way to grow their small restaurant was to include a brewpub system, thus allowing the restaurant to offer beer on tap to their customers and do away with the BYOB label. Samantha did some research on the cost of a new brewpub system. She estimates that they need about .000 square feet of space in the store to accommodat a 7 barrel (bbl) system. Currently they do not have the space available but it just so happens that the retail space next door to Explore Cafe is available for rent. The space costs S3.000 per month but Samantha thinks they can negotiate the rent down to S2,500 per month because of their good relationship with the landlord. However, the space is not equipped to handle the brewpub machinery. After talking with several contractors (with permission of the landlord) Samantha expects that initial construction costs could be as high as S250.000. In a barrel of beer, there are 31 gallons of beer. There are 8 pints in a gallon. Samantha estimat that each seat in the restaurant will require about 7 barrels of beer (best case scenario) per year. She is basing this on the expected number of patrons and on the number of beers each patron i expected to order, on average, throughout the day She uses some scenario analysis to also an estimate of 5 barrels of beer per year per seat for a worst-case scenario outlook. The plan to sell 10 types of beer but all wi have the same in gredient costs and sales price. The cost of a high-quality brewpub system is S300,000. This includes the heater, fermentation tanks, chiller. stainless steel beer faucets, hoses, valves, and carbonator gauges. Samantha looks into some options for ingredients and finds the best deal from an outside beer retailer. The ingredients will cost $4.000 to make 10 barrels of beer. These costs are expected to increase 5 percent per year based on projected agriculture prices. Based on discussions with the brewpub Elizabeth Webb Cooper. La Salle University, Case ID 041001 94%