Project 1

Topics: Net present value, Cash flow, Investment Pages: 4 (1736 words) Published: April 23, 2015
ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑΃ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑‫׊‬ ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑΃ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑‫͑͑͑ͪͩͧ͑͢׊‬ ͧͩͪ͑͑͑͢
͵ΖΔΖΞΓΖΣ͑
͵ΖΔΖΞΓΖΣ͑ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡ ͣͤ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͢͡ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ ͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑͑ʹΒΤΖ͑΄ΥΦΕΪ͑΄ΖΣΚΖΤ

Investing in a Brewpub: A Capital Budgeting Analysis

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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

ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑΃ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄Ϳ͑ͣͣͣͪ͑‫׊‬ ͺΟΥΖΣΟΒΥΚΠΟΒΝ͑΃ΖΤΖΒΣΔΙ͑ͻΠΦΣΟΒΝ͑ΠΗ͑ͲΡΡΝΚΖΕ͑ͷΚΟΒΟΔΖ͑͑͑͑͑ͺ΄΄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...

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.
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