Please make a balance Sheet and Income Sheet with the following information:

CAPITAL INVESTMENT PROJECTS UNDER CONSIDERATION:

1. EXPANSION There is a 6 acre neighboring vineyard currently for sale and CM would like to acquire it. The vineyard produces red grapes that are currently sold to outside retailers. The land is valued at $160,000 per acre. The only structure available on this vineyard is a large shed used to store some equipment and provide temporary shelter for the harvested grapes. Land and vineyard will not be depreciated as both are expected to grow in value over time. Red grapes are outside of CMs area of expertise, but venturing into the red grape spectrum would enable CM to expand their wine offerings. CM conducted an initial soil and grape analysis, which cost $45,000. The analysis indicated that CM should be able to produce a fairly complex Cabernet Sauvignon, with hints of black cherry and plums and touches of vanilla and oak.

At full production, the most the vineyard can produce is 8 tons of grapes per acre. It takes on average 2.5 lbs. of grapes to make one 750 ml bottle of wine. CM is anticipating selling its red wine for $26 a bottle. CM will not record any sales until year 2, since it will need to harvest, ferment and age its first batch of wine the first year. It is estimating that 100% of the wine will be sold each year.

If CM goes through with the purchase of this vineyard, it will have the opportunity to buy the existing vineyard equipment for $75,000 since the seller is retiring and no longer needs this equipment. The equipment consists of a Kubota narrow tractor, a rock picker, a vineyard spreader and some spraying equipment. The used equipment is estimated to have 10 years of life remaining, but will require $4,000 in yearly maintenance. The equipment will have no resale value at the end of 10 years and will be depreciated straight line to zero.

Since CM is operating at full capacity and does not have the equipment needed to make red wine, it will have to invest in the following:

Qty needed Description Price per unit 1 Wine-lab analysis system $14,950 2 Crusher/De-stemmer $15,700 2 Wine Press $7,800 2 Must pump $5,220 6 Transfer hose $395 7 Speidel Sealed Tanks with Cooling jackets $17,000

All of this new wine making equipment will be depreciated using SL depreciation to zero. It has an estimated life of 10 years, at which point the crusher/de-stemmers, wine presses and sealed tanks will be worth 20% of their original cost. The wine analysis system, must pumps and transfer hoses will be scrapped. CM plans to re-evaluate this project after 10 years.

CM currently uses stainless steel vats to ferment their white wine. However, it is well known among wine makers that oak barrels produce better red wine, as they instill additional flavoring to the wine. More specifically, CM is considering using French oak barrels as opposed to American oak barrels. Each barrel will cost $700. CM will need to purchase 142 barrels in year 1, and then again in year 2, since it takes a little over a year to age Cabernet Sauvignon and CM will need another set of barrels for its second harvest as it prepares the first year harvest wine for sale. The first set of barrels bought in year 1 will be ready to re-use for the year 3 harvest. Barrels can be refilled 4 times before they have to be replaced. CM will depreciate the barrels over a 5 year period using SL depreciation to zero. The barrels have no resale value.

CM will use its existing bottling machines and does not foresee purchasing a separate bottling machine for the new Cabernet wine.

Labor: CM will need to hire a vineyard manager and 2 full-time vineyard workers. The starting salary for the manager is expected to be $50,000, and the vineyard workers will be paid $16 per hour. CM will also have to hire a Winemaker ($80,000), an Assistant

Winemaker ($20 per hour) and 2 full-time winery production workers ($16 per hour). Historically, CM has increased salaries at a rate of 3% per year and is expecting to continue to do so.

Other direct Costs of Goods Sold: CM has estimated that running the winery and providing supplies necessary to the production and bottling of the wine will cost approximately $3.24 per bottle.

NWC: this project will tie up an additional $50,000 in net working capital.