Project Management

You have decided that there are not enough beer varieties in the world, and that you are only who can fix this problem. Against the urging of your spouse and friends, you decide to open up a brewery. You have two options: build your own brewery from the ground up or buy an existing one from a fellow dreamer like yourself who has become disillusioned with the business. The existing brewery will need some new equipment and repairs before it can be returned to operation. You must decide whether it is a better investment to build or buy.

Part 6- Analyze using EVA

Assume that building a new brewery will cost $1.4 million in upfront investment and net income after taxes will be $100k per year. The hurdle rate is based on the balance you are currently earning on your investment account, 10%. The brewery will also depreciate at $100,000/year over this period.

What is the EVA of the first five years of the build option?

Assume that buying the brewery will cost $1.1 million in upfront investment and net income after taxes will be $50k per year. The hurdle rate is based on the balance you are currently earning on your investment account, 10%. The brewery will also depreciate at $100,000/year over this period.

What is the EVA of the first five years of the buy option? Which option should you choose?