35639649

To: Doctor Lynna Martinez Subject: Calaveras Vineyards Valuation As per your request, my own associates and i also have worked out a valuation for Calaveras Vineyards making use of the present worth of cash runs. We applied the valuation of long term cash flows method to be able to value to value the company.

We have come to the conclusion, based on several future predictions, that the best valuation of the vineyards is usually $4, 356, 000 in assets and $1, 104, 000 in equity. The task at identifying this value was as follows: 1 .

Initial, using the projected EBIT forecasted income statement, we took the actual 37% duty, change in seed money, and CAPEX for 1994-1998 and added back the depreciation and amortization bills to arrive at cost-free cash moves. We assumed that 1996-1998 would need extra 100k in CAPEX in order to project the reinvestment needs for the organization. 2 . In order to discount these free money flows, we had to find the lower price rate of the company by using a weighted common unlevered Beta, and the safe rate versus the market risk premium: a.

Beta: It was determined by making use of the three identical companies and the unlevered betas as a percentage of what product lines they relate to. b. The risk cost-free rate was taken from the typical 30 12 months T-bonds charge of five. 85%. c. The risk high quality used was the expected return of little companies less the go back of long-term government a genuine, which was six. 4% historically from 1926 to 1992. All of these principles were accustomed to calculate a discount rate of 14. 5% for Calaveras which was utilized to discount the money flows. The whole discounted funds flows equal $1, 585, 000 pertaining to 1994-1998. several.

Next, the tax shield for Calaveras was calculated by using the rates of interest for each season and spreading each benefit by the business tax level of 37%. It was thought that we used the on the lookout for. 5% interest rate, per the suggestion, instead of the average fascination expense provided in the expected income declaration. These upcoming values had been then discounted using the rate of interest. The total PV of taxes shield for 1994-1998 valued at $383, 000. 4. For the terminal worth calculation, all of us chose to use a range of progress rates. Kids that we decided to use to get growth costs was 1%, 1 . 5%, 2%, and 2 . %. We believe that Calaveras can continue to make a high quality wine beverages upholding a powerful brand name and position in the market. Along with this, we feel that the wine beverage industry in general will be developing into the future because of a growing overall economy. These rates represent indefinite growth, therefore , we are placing your company to be growing somewhat above the sector average. The free earnings that we used to calculate the terminal benefit was through the year 97. We performed this mainly because we believed that the cash flow in 1998 has not been a true manifestation of long term cash runs.

In 1998, there was clearly a large drop in current liabilities as a result of drop in current loans, this brought on the difference in working capital to become unusually excessive. We believe, Calaveras will come back to normal numbers of working capital. This will be after the new advertising push and establishment of more spinning line of credit intended for planned long term growth in sales. five. We reduced the terminal values of totally free cash flows at the same discount rate that individuals discounted the free cash flows. We then averaged the range of present value terminal values to get an average present terminal value of free money flows. This value was $1, 820, 000.

We all then calculated the port values of the interest duty shields by using the 1998 interest taxes shield and using the airport terminal value equation, with a lower price rate of 9. five per cent because we discount interest tax shield using the interest rate. This then gave us a range of terminal values of the interest tax safeguard. The average was $568, 500. In conclusion, the PV of FCF (1585k), the PHOTO VOLTAIC of TS benefits (383k), PV of TV of CF (1820k), and PHOTOVOLTAIC of TELEVISION of TS (568k) almost all total to a current asset value of $4, 356, 000 pertaining to Calaveras Grapevines. Please we would encourage you to do this if you have further questions or perhaps requests per the Calaveras’ valuation.