Project 1
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑͑͑͑ͪͩͧ͑͢
ͧͩͪ͑͑͑͢
͵ΖΔΖΞΓΖΣ͑
͵ΖΔΖΞΓΖΣ͑ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡
ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
Investing in a Brewpub: A Capital Budgeting Analysis
ͳ
Elizabeth Webb Cooper, Ph.D.
Associate Professor of Finance
La Salle University
1900 W. Olney Ave.
Philadelphia, PA 19041 cooper@lasalle.edu Elizabeth Webb Cooper, La Salle University, cooper@lasalle.edu
Case ID 041001
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑͑͑͑ͪͩͧ͑͢
ͧͩͪ͑͑͑͢
͵ΖΔΖΞΓΖΣ͑
͵ΖΔΖΞΓΖΣ͑ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡
ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
Abstract
Two recent college graduates own a restaurant and want to decide whether to invest in a brewpub system, which would allow the 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 have a keen understanding of relevant versus non-relevant cash flows. Further, they must use these cash flows in 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 costs of capital. In the end, the pair needs to decide whether to invest in the brewpub in light of their full analysis.
The Case
Samantha Myers and Grant Patrick graduated from college seven years ago.
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑͑͑͑ͪͩͧ͑͢
ͧͩͪ͑͑͑͢
͵ΖΔΖΞΓΖΣ͑
͵ΖΔΖΞΓΖΣ͑ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡
ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
Investing in a Brewpub: A Capital Budgeting Analysis
ͳ
Elizabeth Webb Cooper, Ph.D.
Associate Professor of Finance
La Salle University
1900 W. Olney Ave.
Philadelphia, PA 19041 cooper@lasalle.edu Elizabeth Webb Cooper, La Salle University, cooper@lasalle.edu
Case ID 041001
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑͑͑͑ͪͩͧ͑͢
ͧͩͪ͑͑͑͢
͵ΖΔΖΞΓΖΣ͑
͵ΖΔΖΞΓΖΣ͑ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡
ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ
Abstract
Two recent college graduates own a restaurant and want to decide whether to invest in a brewpub system, which would allow the 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 have a keen understanding of relevant versus non-relevant cash flows. Further, they must use these cash flows in 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 costs of capital. In the end, the pair needs to decide whether to invest in the brewpub in light of their full analysis.
The Case
Samantha Myers and Grant Patrick graduated from college seven years ago.
References: Hawawini, Gabriel and Claude Viallet (2007). Finance for Executives. (4th ed.). South-Western Cengage Learning. Kierulff, Herbert (2012). IRR: A Blind Guide. American Journal of Business Education, 5(4), 417-426. Ross, Stephen; Randolph Westerfield and Jeffrey Jaffe (2009). Corporate Finance. (9th ed.). Ryan, Patricia and Glenn Ryan (2002). Investment Practices of the Fortune 1000: How have things changed? Journal of Business and Management, 8(4), 355-364.