Hi, the first page has the questions, the rest of the pages are the pages with information about the business. I just needed a little help with my case study. Thank you!

Loftus Ranches Case Study Brief Description of Assignment You will put yourself in the role of the owners/managers of Loftus Ranches and you have a big decision to make. Using the provided case study, you must decide whether to invest in Bale Breaker Brewery. There is a lot of information contained in the case study. Just like in real life, you may have experts and consultants provide you with estimates and projections. Some of it you may find useful and some of it you may not. You can decide which information you utilize in making your recommendation. . . Put yourself in the shoes of the managers and owners of Loftus Ranches when they were making this decision in 2013-2014, not today. Then you will turn in a written version of your recommendation. Your written submission will be graded on the quality of your recommendation not whether it is "right or wrong" or if you make the same decision Loftus Ranches chose. Written Submission: Your written submission should explain and justify your decision about investing in Bale Breaker Brewery. Your written submission must include at least the following: Summarize the current (2013-2014) situation O Loftus Ranches, the market for hops, and the market for craft beer market o Make sure you explain any changes in the markets or marketing of hops or beer Investment Recommendation o Should Loftus Ranches invest in the Bale Breaker Brewery? o Defend your answer. What is the size of the proposed investment? What are the economic reasons for your recommendation? o How does the opening brewery align or not align with market conditions? o What core competencies (strengths) would Loftus Ranches leverage in a brewery investment? 0 Do the key players have the skills to make the brewery successful? Marketing Strategy Recommendation o Conduct a brief SWOT analysis. Identify one strength, weakness, opportunity, and threat of Loftus Ranches entering the brewery market. o Assume Loftus Ranches does invest in the brewery, what advice would you provide them on their go-to-market strategy? o Should they choose and exclusive (ie "keg") or broad (i.e "cans") marketing strategy? Describe the two strategies. Defend your recommendation O Meghann Quinn, Patrick's sister, would serve as Bale Breaker's operating and financing officer Har degree in finance and current management role at a winery in Idaho makes her an ideal operations leader. Marketing, logistics, accounting and information technology are all within her capabilities Kevin Smith, Patrick's brother, would serve as Bale Breaker's brew master. He is currently the assistant brewer at a Seattle craft brewery and has experience with the brew house operations, recipe design, quality control, and production scheduling. Kevin's current employer is also a recent start-up brewery, which has provided a lot of insights into challenges that might arise during Bale Breaker's start-up period. Kevin Quinn, Meghann's husband, would lead the brewery's sales activities. Currently working as the director of franchise development for a fast-growing restaurant chain, his industry sales experience will be heavily leveraged. In Patrick's mind, the management team for Bule Breaker was the casy part. 3.3 The Details In the weeks leading up to Patrick's move back to the farm he had spent several hours collecting data and pulling together information about the investment potential . Patrick shared the information with the family through a series of emails and meetings so they could start to dig into the investment. His first email with details was sent two weeks before his return; From: Smith, Patrick Sent: Two Weeks ago, 10:54 PM To: "Mom': "Dad":"Kevin': "Meghann: "Kevin Quinn Subject: Bale Breaker Materials for Friday's Meeting All First, thank you for your patience. This has taken me substantially longer than I onginally anticipated. The final product, I think, reflects the additional quality and details I've been able to incorporate Second, I appreciate the hours of phone calls you have cach spent with me getting the plan to where it is today. Please view this as a working plan and I hope we can collect feedback and adjust or build from here Here is the investment to consider 10000 Barrels per year capacity Initial investment projection or $3,750,000 Land: $250 000 Building $1 250 000 * Brewing Equipment SI 250.000 General Stanton Expenses 100.000 A key decision that needs to be made in the marketing strateey The two options are . Exclusive Marketing Strategy. I like to call this the "kog stintegy. For this sentegy. we'll focus on getting our brows on top at as many pubs and premier locations as possible. Kegs have a lower cost of production and get better prices por barrel of beer produced both of these lead to a higher margint the trade off comes at volumes. The Exclusive Marketing Strategy is a high-margin, low volume business model. With the exclusive marketing strategy. our first year volume is estimated at 1,200 barrels. Our revenue por barrel is estimated at $413 per barrel. Brond Marketing Strategy. If the first strategy is "keys, this strategy would best be known as "cans. In this strategy, we will focus on sales through cans and a broad marketing strategy, such as retail locations and liquor stores. Cans cost a bit more and our revenu per barrel will be reduced. Our first year estimate for production with this strategy, however, is considerably more at 2,200 barrels with an estimated price point of $344 per barrel. This strategy is a low-margin, high-volume business model. After significant analysis and conversations with Kevin, other craft brewery owners and Carson, the consultant Kevin put me in contact with, it seems that the brewery's success will be driven by our ability to strongly position our brand relative to competing craft brewers and the multinational brands. In addition, success will also depend on long-term growth rate for the craft brew industry. While the industry's growth has been strong, some wonder if it is sustainable or a fad. Of course, other factors matter as well-input prices, beer prices, overhead costs, etc.but the two key unknowns are our brand position and the industry growth rate. Brand Position: I looked at two possibilities for our brand position. With a strong brand position, I assume our initial sales growth would increase by an estimated 50 percent annually. With a moderate brand position, I assume our initial sales growth would increase by an estimated 35 percent annually Long-Term Craft Beer Growth Rates: I see two possibilities. The first is a continuation of the current rapid growth rate at 10 percent annually over the next five years. The second possibilities ponders a fad market where growth would contract 10 percent annually. In the attachment (see Appendix I and Appendix II) are the key decisions, key uncertainties and their associated probabilities, and assumptions about the impacts of these decisions and uncertainties for estimated gross margin net margin, production margin and the estimated NPV for a ten-year NPV analysis, from the different market share and long-term growth outcomes . See you Friday Patrick 3 More Decisions Following Patrick email the family held a long but successful web meeting. As if the initial decision wasn't complicated enough the family created more options to analyze and consider Patrick's brother as keeping the notes and shared the highlights in an email later that evening . From: Smith, Kevin Sent: Last Weck, 8:31 PM To: 'Patrick'; 'Dad", "Mom'; "Megham', 'Kevin Quinn Subject: Bale Breaker Meeting Notes All A giant thanks to Patrick for putting all the materials together. Here are my notes from today's meeting It was agreed that, if the project is approved, Balc Brcaker would be built on three acres of Field 41. One of the brewery's flagship brows, a pale ale, would bear the field's name. For what it's worth, the family agreed that it was likely (70 percent probability) that a strong brand position would be achieved and the brews would be popular. Also, it was agreed that it was likely (60 percent probability) that the industry growth would continue to grow, a 40 percent chance of contraction moving forward. Mom asked if it would be possible to wait before making the investment. Her suggestion was that, potentially, we could know more about our market share potential by brewing some of our beers and building awareness in the local beer festivals. It would then give us an idea of how popular our products might be. It was agreed that knowing that the brands would be popular would be helpful, signaling a strong year-five market share, My consultant friend, Carson, has suggested we consider a co-packing scenario. With this we would find a business partner (Carson says he knows a current customer of YCH that's looking to expand) to go in on the venture with us. Patrick will look into the financial implications, but this option seems to provide us with an opportunity to mitigate the losses in a bad scenario and capture most of the returns from a good scenario We look forward to Patrick's findings and recommendations! KS A follow-up phone call with Carson led to the possibility of a co-packing situation. A brewer in Northem California was interested in doubling their capacity by adding another 7.500 barrels of production, but wouldn't be able to do so at their current location for a number of years due to zoning changes. Patrick and Carson believed Bale Breaker could build a 15.000-barrel plant on the Field 41 site for about $4 3 million, including the value of the land The land and start-up expenses would still be fully realized by Bale Breaker, but they would only have to invest 60 percent of the $3.05 million in building and brewing equipment. If they decided, in five years that they wanted to have the full capacity for themselves, they could buy out the other half of capacity for $1 21 million Based on this scenano Patrick had put together a Table of financial assumptions around the Joint Venture idea (Appendix 1) Now he was beginning to think about how he would evaluate the value in his mother's suggestion of waiting 10.00 Appendix I. Summary Table of Parameters and NPVs for Loftus Ranches' Decision Set Summary Table of Loftus Ranches Pull Decalon Sat Volume Gross Pro Capacity 1st Decision HPV 2nd Decision Event1 Event 2 3rd Decision (1000 G) Marcin Maupin (1000 Gol 610000 Comments Ft Owen Excluste Strong Brand Ful Growth None 971 50% 200 10 3340 Pride and Fu Ownership Facune Strong Brand Decline None 3.50 66% 31 10 minded the Fun OSNO Exclusive Age Brand Fast Growth None 0.42 56% 16.1% 10 11,123) We need bele boer Full Ownership Exchange A Brand Decline None 235 80 14.14 10 R10 lot? Ful Ownership Broad Strong Brand Fast Growth None 615 28.2% 10 2,401 Ride the wave Ful Ownership Broad Strong Brand Decline None 5.91 60% 21.6% 10 212 Where did the market go? Full Ownership Broad Average Brand Fast Growth None 10.00 46% 9.3% 10 (1,554) Too many breweries Full Ownership Broad Average Brand Decline None 5.91 60% 5.6% 10 (2,827) Houston we have a problem Loire Venture Exclusive Strong Brand Fast Growth Exercise 9.78 65% 315% 15 2. Now we are taking Joint Venture Exclushe Strong Brand Fast Growth No Exercise 7.50 65% 28.0% 7.5 2.1 woning Joint Venture Exclusive Strong Band Decline Exercise 3.59 66% 30.0% 15 an mot Ventus Exclusive Strong Brand Decline No Exercise 3.30 60% 29.3% 7.5 T3 Could turve been worse int Venture Exclusive Avenge Brand Fast Growth Exercise 0.42 55% 16.8% 15 (1,0647 Need to the partner recipes! Joint Venture Exclusive Average Brand Fast Growth No Exercise 6.42 55% 16.3% 725 (534) Options relped Joint Venture Exclusive Average Brand Decline Exercise 235 55% 15.3% 15 (2.130) Dumb decision Venture Exclusive Average Brand Decline No Exercise 2.35 14.3% 7.5 (1.600) Atleast we then Joint Venture Broad Strong Brand Fast Growth Exer 12.08 50% 253 15 2,090 Glad we had the option Joint Venture Broad Strong brand Fast Growth No Exercise 7.50 60% 26.1% 7.5 1,508 Need to say goodby to partner Joint Venture Broad Strong Brand Decline Exercise 443 61% 18.15 15 11) Don't need the capacity Joint Venture Broad Strong Brand Decline No Exercise 432 61% 17.6% 7.5 219 Sand capacity a good thing Joint Venture Broad Average Brand Fast Growth Exercise 11.77 60% 10 35 15 (1203) More capacity bad beer?? Joint Venture Broad Average Brand Fast Growth No Exercise 750 47% 1024 7,5 (1122) get better then pelige Joint Venture Broad Average Brand Decine Exercise 4 32 40% 8.9% 15 2.259) Really amb desion Joint Venture Broad Average Brand Decine No Exercise 4.32 40% 1.3 25 11,729) Better than the stomative. I guess Definitions Full Omership -- Breaker owns 100% of the 10.000 barel brewery Joint Venture Enter into a w with another brent for a 15.000 galon brewery with 65 percentupione nestment by Bae breaker for the night to use son of capacity 03.03 ) Be reaker has the right to purchase the remaning 50 percent of the capacity afer 5 years for $1.22 million Capacity available Year Exclusive Inest in a brewery with exclusive distribution through our tasting room Hondinesh brewery with broad distribution through a channels using can Strong trandae Breaker has a strong Brand position relative to competitor and Probability of curing you Average and use Breaker has a Average Brand Position relative to competitor and Pity of accuring 30 Last Growth the overall market for orandorised to grow 10% 5) Probiccum.com Slow Growth Trail market for et expected to decane 10 Yew Y6 Probability of coming 4044 decid to exercise the ti to moure the other of the way for 1Malon ALDIKLAMUUALLY Capably stated Capacity in Yow to Geo Magal. Con Les cost od Goses Savon Pro Mariboomer The 10 ses Appendix II Investment Assumptions Volume Annual Growth (Year 1-5): Annual Growth (Year 6-10): 35% with weak brand recognition; 50% with strong brand recognition. 10% with fast Industry growth; -10% with industry decline. Revenue $344/barrel for broad strategy. $413/barrel with exclusive strategy Capacity 10,000 gallons with Full Ownership. 7,500 gallons with Joint Venture (option not exercised). 15,000 gallons with Joint Venture, option exercised (Year 6 - 10) Investment Full Ownership: $3.75 million Joint Venture: $3.08 million; 1.22 million to exercise option (pay in year 5) Investment Discount Rate (hurdle rate) 15% Terminal Valuation Rate 10% Analysis Assumptions A 10 year NPV was conducted. To calculate the residual value of the company beyond year 10, a terminate valuation rate of 10% of year 10 earning was used. It is also assumed the initial investment and the first year of production will both occur in year 1. Loftus Ranches Case Study Brief Description of Assignment You will put yourself in the role of the owners/managers of Loftus Ranches and you have a big decision to make. Using the provided case study, you must decide whether to invest in Bale Breaker Brewery. There is a lot of information contained in the case study. Just like in real life, you may have experts and consultants provide you with estimates and projections. Some of it you may find useful and some of it you may not. You can decide which information you utilize in making your recommendation. . . Put yourself in the shoes of the managers and owners of Loftus Ranches when they were making this decision in 2013-2014, not today. Then you will turn in a written version of your recommendation. Your written submission will be graded on the quality of your recommendation not whether it is "right or wrong" or if you make the same decision Loftus Ranches chose. Written Submission: Your written submission should explain and justify your decision about investing in Bale Breaker Brewery. Your written submission must include at least the following: Summarize the current (2013-2014) situation O Loftus Ranches, the market for hops, and the market for craft beer market o Make sure you explain any changes in the markets or marketing of hops or beer Investment Recommendation o Should Loftus Ranches invest in the Bale Breaker Brewery? o Defend your answer. What is the size of the proposed investment? What are the economic reasons for your recommendation? o How does the opening brewery align or not align with market conditions? o What core competencies (strengths) would Loftus Ranches leverage in a brewery investment? 0 Do the key players have the skills to make the brewery successful? Marketing Strategy Recommendation o Conduct a brief SWOT analysis. Identify one strength, weakness, opportunity, and threat of Loftus Ranches entering the brewery market. o Assume Loftus Ranches does invest in the brewery, what advice would you provide them on their go-to-market strategy? o Should they choose and exclusive (ie "keg") or broad (i.e "cans") marketing strategy? Describe the two strategies. Defend your recommendation O Meghann Quinn, Patrick's sister, would serve as Bale Breaker's operating and financing officer Har degree in finance and current management role at a winery in Idaho makes her an ideal operations leader. Marketing, logistics, accounting and information technology are all within her capabilities Kevin Smith, Patrick's brother, would serve as Bale Breaker's brew master. He is currently the assistant brewer at a Seattle craft brewery and has experience with the brew house operations, recipe design, quality control, and production scheduling. Kevin's current employer is also a recent start-up brewery, which has provided a lot of insights into challenges that might arise during Bale Breaker's start-up period. Kevin Quinn, Meghann's husband, would lead the brewery's sales activities. Currently working as the director of franchise development for a fast-growing restaurant chain, his industry sales experience will be heavily leveraged. In Patrick's mind, the management team for Bule Breaker was the casy part. 3.3 The Details In the weeks leading up to Patrick's move back to the farm he had spent several hours collecting data and pulling together information about the investment potential . Patrick shared the information with the family through a series of emails and meetings so they could start to dig into the investment. His first email with details was sent two weeks before his return; From: Smith, Patrick Sent: Two Weeks ago, 10:54 PM To: "Mom': "Dad":"Kevin': "Meghann: "Kevin Quinn Subject: Bale Breaker Materials for Friday's Meeting All First, thank you for your patience. This has taken me substantially longer than I onginally anticipated. The final product, I think, reflects the additional quality and details I've been able to incorporate Second, I appreciate the hours of phone calls you have cach spent with me getting the plan to where it is today. Please view this as a working plan and I hope we can collect feedback and adjust or build from here Here is the investment to consider 10000 Barrels per year capacity Initial investment projection or $3,750,000 Land: $250 000 Building $1 250 000 * Brewing Equipment SI 250.000 General Stanton Expenses 100.000 A key decision that needs to be made in the marketing strateey The two options are . Exclusive Marketing Strategy. I like to call this the "kog stintegy. For this sentegy. we'll focus on getting our brows on top at as many pubs and premier locations as possible. Kegs have a lower cost of production and get better prices por barrel of beer produced both of these lead to a higher margint the trade off comes at volumes. The Exclusive Marketing Strategy is a high-margin, low volume business model. With the exclusive marketing strategy. our first year volume is estimated at 1,200 barrels. Our revenue por barrel is estimated at $413 per barrel. Brond Marketing Strategy. If the first strategy is "keys, this strategy would best be known as "cans. In this strategy, we will focus on sales through cans and a broad marketing strategy, such as retail locations and liquor stores. Cans cost a bit more and our revenu per barrel will be reduced. Our first year estimate for production with this strategy, however, is considerably more at 2,200 barrels with an estimated price point of $344 per barrel. This strategy is a low-margin, high-volume business model. After significant analysis and conversations with Kevin, other craft brewery owners and Carson, the consultant Kevin put me in contact with, it seems that the brewery's success will be driven by our ability to strongly position our brand relative to competing craft brewers and the multinational brands. In addition, success will also depend on long-term growth rate for the craft brew industry. While the industry's growth has been strong, some wonder if it is sustainable or a fad. Of course, other factors matter as well-input prices, beer prices, overhead costs, etc.but the two key unknowns are our brand position and the industry growth rate. Brand Position: I looked at two possibilities for our brand position. With a strong brand position, I assume our initial sales growth would increase by an estimated 50 percent annually. With a moderate brand position, I assume our initial sales growth would increase by an estimated 35 percent annually Long-Term Craft Beer Growth Rates: I see two possibilities. The first is a continuation of the current rapid growth rate at 10 percent annually over the next five years. The second possibilities ponders a fad market where growth would contract 10 percent annually. In the attachment (see Appendix I and Appendix II) are the key decisions, key uncertainties and their associated probabilities, and assumptions about the impacts of these decisions and uncertainties for estimated gross margin net margin, production margin and the estimated NPV for a ten-year NPV analysis, from the different market share and long-term growth outcomes . See you Friday Patrick 3 More Decisions Following Patrick email the family held a long but successful web meeting. As if the initial decision wasn't complicated enough the family created more options to analyze and consider Patrick's brother as keeping the notes and shared the highlights in an email later that evening . From: Smith, Kevin Sent: Last Weck, 8:31 PM To: 'Patrick'; 'Dad", "Mom'; "Megham', 'Kevin Quinn Subject: Bale Breaker Meeting Notes All A giant thanks to Patrick for putting all the materials together. Here are my notes from today's meeting It was agreed that, if the project is approved, Balc Brcaker would be built on three acres of Field 41. One of the brewery's flagship brows, a pale ale, would bear the field's name. For what it's worth, the family agreed that it was likely (70 percent probability) that a strong brand position would be achieved and the brews would be popular. Also, it was agreed that it was likely (60 percent probability) that the industry growth would continue to grow, a 40 percent chance of contraction moving forward. Mom asked if it would be possible to wait before making the investment. Her suggestion was that, potentially, we could know more about our market share potential by brewing some of our beers and building awareness in the local beer festivals. It would then give us an idea of how popular our products might be. It was agreed that knowing that the brands would be popular would be helpful, signaling a strong year-five market share, My consultant friend, Carson, has suggested we consider a co-packing scenario. With this we would find a business partner (Carson says he knows a current customer of YCH that's looking to expand) to go in on the venture with us. Patrick will look into the financial implications, but this option seems to provide us with an opportunity to mitigate the losses in a bad scenario and capture most of the returns from a good scenario We look forward to Patrick's findings and recommendations! KS A follow-up phone call with Carson led to the possibility of a co-packing situation. A brewer in Northem California was interested in doubling their capacity by adding another 7.500 barrels of production, but wouldn't be able to do so at their current location for a number of years due to zoning changes. Patrick and Carson believed Bale Breaker could build a 15.000-barrel plant on the Field 41 site for about $4 3 million, including the value of the land The land and start-up expenses would still be fully realized by Bale Breaker, but they would only have to invest 60 percent of the $3.05 million in building and brewing equipment. If they decided, in five years that they wanted to have the full capacity for themselves, they could buy out the other half of capacity for $1 21 million Based on this scenano Patrick had put together a Table of financial assumptions around the Joint Venture idea (Appendix 1) Now he was beginning to think about how he would evaluate the value in his mother's suggestion of waiting 10.00 Appendix I. Summary Table of Parameters and NPVs for Loftus Ranches' Decision Set Summary Table of Loftus Ranches Pull Decalon Sat Volume Gross Pro Capacity 1st Decision HPV 2nd Decision Event1 Event 2 3rd Decision (1000 G) Marcin Maupin (1000 Gol 610000 Comments Ft Owen Excluste Strong Brand Ful Growth None 971 50% 200 10 3340 Pride and Fu Ownership Facune Strong Brand Decline None 3.50 66% 31 10 minded the Fun OSNO Exclusive Age Brand Fast Growth None 0.42 56% 16.1% 10 11,123) We need bele boer Full Ownership Exchange A Brand Decline None 235 80 14.14 10 R10 lot? Ful Ownership Broad Strong Brand Fast Growth None 615 28.2% 10 2,401 Ride the wave Ful Ownership Broad Strong Brand Decline None 5.91 60% 21.6% 10 212 Where did the market go? Full Ownership Broad Average Brand Fast Growth None 10.00 46% 9.3% 10 (1,554) Too many breweries Full Ownership Broad Average Brand Decline None 5.91 60% 5.6% 10 (2,827) Houston we have a problem Loire Venture Exclusive Strong Brand Fast Growth Exercise 9.78 65% 315% 15 2. Now we are taking Joint Venture Exclushe Strong Brand Fast Growth No Exercise 7.50 65% 28.0% 7.5 2.1 woning Joint Venture Exclusive Strong Band Decline Exercise 3.59 66% 30.0% 15 an mot Ventus Exclusive Strong Brand Decline No Exercise 3.30 60% 29.3% 7.5 T3 Could turve been worse int Venture Exclusive Avenge Brand Fast Growth Exercise 0.42 55% 16.8% 15 (1,0647 Need to the partner recipes! Joint Venture Exclusive Average Brand Fast Growth No Exercise 6.42 55% 16.3% 725 (534) Options relped Joint Venture Exclusive Average Brand Decline Exercise 235 55% 15.3% 15 (2.130) Dumb decision Venture Exclusive Average Brand Decline No Exercise 2.35 14.3% 7.5 (1.600) Atleast we then Joint Venture Broad Strong Brand Fast Growth Exer 12.08 50% 253 15 2,090 Glad we had the option Joint Venture Broad Strong brand Fast Growth No Exercise 7.50 60% 26.1% 7.5 1,508 Need to say goodby to partner Joint Venture Broad Strong Brand Decline Exercise 443 61% 18.15 15 11) Don't need the capacity Joint Venture Broad Strong Brand Decline No Exercise 432 61% 17.6% 7.5 219 Sand capacity a good thing Joint Venture Broad Average Brand Fast Growth Exercise 11.77 60% 10 35 15 (1203) More capacity bad beer?? Joint Venture Broad Average Brand Fast Growth No Exercise 750 47% 1024 7,5 (1122) get better then pelige Joint Venture Broad Average Brand Decine Exercise 4 32 40% 8.9% 15 2.259) Really amb desion Joint Venture Broad Average Brand Decine No Exercise 4.32 40% 1.3 25 11,729) Better than the stomative. I guess Definitions Full Omership -- Breaker owns 100% of the 10.000 barel brewery Joint Venture Enter into a w with another brent for a 15.000 galon brewery with 65 percentupione nestment by Bae breaker for the night to use son of capacity 03.03 ) Be reaker has the right to purchase the remaning 50 percent of the capacity afer 5 years for $1.22 million Capacity available Year Exclusive Inest in a brewery with exclusive distribution through our tasting room Hondinesh brewery with broad distribution through a channels using can Strong trandae Breaker has a strong Brand position relative to competitor and Probability of curing you Average and use Breaker has a Average Brand Position relative to competitor and Pity of accuring 30 Last Growth the overall market for orandorised to grow 10% 5) Probiccum.com Slow Growth Trail market for et expected to decane 10 Yew Y6 Probability of coming 4044 decid to exercise the ti to moure the other of the way for 1Malon ALDIKLAMUUALLY Capably stated Capacity in Yow to Geo Magal. Con Les cost od Goses Savon Pro Mariboomer The 10 ses Appendix II Investment Assumptions Volume Annual Growth (Year 1-5): Annual Growth (Year 6-10): 35% with weak brand recognition; 50% with strong brand recognition. 10% with fast Industry growth; -10% with industry decline. Revenue $344/barrel for broad strategy. $413/barrel with exclusive strategy Capacity 10,000 gallons with Full Ownership. 7,500 gallons with Joint Venture (option not exercised). 15,000 gallons with Joint Venture, option exercised (Year 6 - 10) Investment Full Ownership: $3.75 million Joint Venture: $3.08 million; 1.22 million to exercise option (pay in year 5) Investment Discount Rate (hurdle rate) 15% Terminal Valuation Rate 10% Analysis Assumptions A 10 year NPV was conducted. To calculate the residual value of the company beyond year 10, a terminate valuation rate of 10% of year 10 earning was used. It is also assumed the initial investment and the first year of production will both occur in year 1