Claaveras Wineyards Case - Dcf Analysis and Adjustments

Calaveras Vineyards

DCF Analysis and Adjustments

DCF analysis of Calaveras Vineyards was evaluated using provided projection exhibits and other relevant information surrounding the purchase. When determining terminal values, growth projections of 1% have been used as the most likely expected value from probability analysis of future growth. Adjustments for increased capital expenditures and organization costs have been accounted for from given depreciation, amortization, and CAPEX.

Decision

Under an adjusted present value valuation, Calaveras Vineyards has an estimated valuation of 4.43 M, which is higher than the current 4.12 M asking price. This difference in valuation may be attributed to the underlying assets of Calaveras being undervalued for future growth. Long-term strategic positioning by new management creates an opportunity to leverage assets in a more valuable fashion than current operations. Finally, CAPM discount rate is larger than all comparables, which creates a more conservative valuation that is still higher than asking price. Therefore, I would recommend Dr. Martinez to purchase Calaveras because there is an opportunity to buy to business for less than it is worth and accumulate additional value via the purchase.  

Competitive Advantage

Dr. Martinez brings strong management of elevating wine brand recognition and product mixes to high-end segments. In addition, Martinez is familiar with working in family owned culture vineyards and has extremely relevant education to her industry. Her education will ensure that they are able to produce high quality products to satisfy a premium segment. Martinez will also be able to leverage Peter Newsome’s industry and business knowledge to ensure smooth transition and efficient operations. Calaveras needs focus in vision and Dr. Martinez has the skill set and aligned incentives to propel Calaveras to a position within the market that maximizes value.

Incentives

With Dr. Martinez’ purchase of Calaveras, her equity stake of 85% ensures that focus on strategy is long-term for the company. Martinez won’t have to focus on short-term performance metrics like many other company owners because she won’t have stakeholders demanding immediate performance. Martinez will be able to position the brand with consistent leadership vision to create a competitive advantage within the market. Calaveras has lacked consistency in strategy but a large equity purchase with familiar leaders will further align incentives.

Purchase Impact

Purchasing Calaveras has minimal impact on the competitive advantages and incentives Dr. Martinez has. Overall, her strengths will be reinforced from the purchase because she will be concerned with long-term business health as further positioning occurs in a growing market. Aligning both Dr. Martinez and Mr. Newsome’s knowledge and expertise with long-term business focus creates a great value proposition for purchasing the vineyard.