Question 1 Namara Brewing Inc. Ever since Mick McNamara was a kid he loved beer and would often have a small glass with his dad on special occasions. Mick knew that when he grew up he would build his own brewery one day. After working in the beer industry for 15 years and learning the ins and outs of operations, sales and marketing he decided to open his own brewing company in 2011 called Namara Brewing Inc. (NB) NB initially started its operations with 3 kinds of beer: a lager, a pilsner and a pale ale and both sales and demand for these beers have been increasing steadily as the company gains more recognition and market share. NB attributes its success to quality ingredients, strict brewing processes, excellent quality assurance and unique marketing which includes distinct names for all of its beers. These names are intended to capture the customers attention. Over the past couple of years sales have become stagnant as such Mick and his team have been thinking about new ways to attract customers and shake things up. One of Mick's team members Danny suggested that Namara Brewing launch a new type of beer which would help the company attract new customers. Danny, having been to a recent beer festival was blown away by the demand for India Pale Ales (IPA), ahnost all breweries had a type of IPA for sale and it was the talk of the festival. After conducting thorough market research, surveys and analysis, NB decided to launch their own IPA style beer. The company has decided to launch three types of IPA beers and price them as follows: BeastBerIy Sour IPA: $3.10 Chackooos Coffee IPA: 3.50 The Mort Special IPA: 3.75 [ET-SEE past experience and market research, costs to produce a six pack of beer are as follows: From past experience and market research, costs to produce a six pack of beer are as follows: Malt: $0.65 Hops: 0.53 Yeast: 0.13 Sour Hops Sour IPA only: 2.25 Coffee Beans - Coffee IPA only: 3.00 Extra Citrus Hops - Mort IPA only: 3.75 Packaging: 1.50 Shipping: 1.75 The company is currently at max capacity and does not have the equipment or the space to produce IPA beers. As such, NB has decided that it will be renting a new brewing location and investing in a new equipment. It is now August 1, 2024 and after talking to multiple brokers, NB has found a location and building near its current operations. This building was previously owned and operated as a brewery as well. As such NB would only have to buy one new machine to be up and running. The company expects to start its IPA production on August 1, 2025. NB fiscal year-end is July 31. The estimated annual overhead costs of the new building are as follows: Rental - Building: $ 120,000 Utilities: $ 1,250 Insurance: $ 1,950 The new machine that NB is required to purchase is required in the processing of hops which is the main ingredient in IPAs. The HoppyExpress3000 will cost the company $30,000. The machine would require maintenance after every 2 years of $2,000 and one-time training for this machine is needed as this machine is relatively new in the industry and this would cost the company $5,000. The new machine has a life span of 5 years, salvage value of $5,000, CCA rate of 8% per annum. 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 In addition, to the above costs, the company has estimated that marketing and advertising expense annually would be $15,000. The company is also planning on hiring an IPA sales specialist for $65,000 per year. In addition, new employees would need to be hired for production and other processes for the new location, the company expects costs totalling $200,000 annually for these new hires. Both the sales specialist and the new employees are expected to be hired permanently and set up as salaried employees. The initial market research suggests that unit sales of BeastBerry Sour, Chackooos Coffee, Mort Special IPA would be 45,000, 60,000 and 72,500 cans respectively in the rst year. These sales in units are expected to increase by 2% annually year over year. The selling price of the BeastBerry Sour, Chackooos Coffee, Mort Special IPA is expected to increase by 1.65%, 3.20% and 2.75% respectively under the most favourable scenario. In addition, all variable costs are expected to increase by approximately 1.5% year over year. Except where told otherwise assume that all cash ows take place at year-end. The weighted average cost of capital is 11%. The income tax rate is 30%. The company is expecting to run its operations for 5 years after which they will re-evaluate its operations. For the purposes of this proposed expansion assume operations of 5 years. It is estimated that the annual amount of funds tied up inventory and working capital will approximate $15 0,000 this capital infusion will occur on August 1, 2025. The full capital infusion will be released at the end fiscal 2029 Required: a) b) d) Using excel, determine the net present value of this capital project and based strictly on the quantitative analysis, make a recommendation regarding this proposal. Important: Please show all your work in excel. Be as detailed as possible. Also assume your analysis is to be as at August 1, 2024. It is advised you breakdown cash ows on a separate excel sheet into separate year's (columns) (25 marks) Using excel, calculate the IR and based strictly on the quantitative analysis, make a recommendation regarding the proposal (3 marks) What are the pros and cons of launching three new IPA drinks? Please provide 2 Pros and 2 Cons. (4 marks) Provide an overall recommendation based on both the quantitative and qualitative analysis performed in questions a & b above and c