look into the requirement
You should have read the case “Steel String case “ and prepared an NPV analysis for the Steel String bottling proposal. To make the analysis slightly easier assume the following: · The company has 250 barrels/year excess capacity · The run for the bottling machine will be 60 cases/day, 12 oz bottles. Assume 5% wastage on production · The monthly vehicle cost of $450 ($5,400 annually) is completely expensed (this is an allowable expense plus insurance/gas, there is no imputed interest) · The training ($1,500) is considered an allowable installation cost at t0, as such it should be capitalized and amortized over the anticipated 4 year life of the equipment. The company uses straight-line depreciation · The tax rate is 30% · The company has not calculated a cost of capital but management knows a close competitor has been using 8% You should complete this analysis using EXCEL. I suggest you convert production, material, and labour costs to a per case basis as the information indicates the company intends on selling its product at $38.00 per case. Put your valuation on only one EXCEL worksheet. The maximum footprint for the worksheet is no more than 35 rows and 11 columns (column K). Do not hide columns or rows. The EXCEL spreadsheet (PDF will NOT be accepted) w Upload your NPV analysis (excel file) that contains your NPV analysis of the Steel String bottling proposal titled “Steel String Excel file.” Microsoft Word - 9B18M010.docx 9B18M010 STEEL STRING: TO BOTTLE OR NOT TO BOTTLE Carri R. Tolmie and Thomas Tiemann wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e)
[email protected]; www.iveycases.com. Copyright © 2018, Ivey Business School Foundation Version: 2018-01-24 Inspired by the agricultural bounty of the North Carolina Piedmont and the funky, free-spirited vibes of Carrboro, Steel String adapts modern American brewing styles and techniques into a unique North Carolina vernacular. Steel String aims to brew beer that represents the culture and character of our local community. “Welcome,” Steel String Brewery Three-year-old Steel String Brewery was owned by three friends—Will Isley, the brewer; Andrew Scharfenberg, the business manager; and Eric Knight, planner for events and promotion. By July 2016, they had established a successful pub in downtown Carrboro, North Carolina, just a mile or two from the University of North Carolina at Chapel Hill campus. With an active craft-brewing scene, North Carolina had lots of people looking for good, local beer in bars, restaurants, and bottle shops. Therefore, it was not surprising that Steel String had faced fierce competition from other craft breweries in their first few years of operation. However, their determination led to continued growth, which allowed them to hire three other regular employees—Jesus Koesling, the assistant brewer; Steven Horton, the pub manager; and Alfred Kilzi, the odd-job man. They also had a group of bartenders who worked a shift or two each week. However, at the start of 2017, the co-owners had been grappling with several questions: Should they invest in the machinery and labour to start bottling their beer? Further, should they consider different pricing strategies? And finally, what additional ways could they look at for giving back to their community through their social responsibility efforts? CRAFT BREWING AT ITS BEST The brewery was in the same space as the pub, and while crowded, had a capacity of 600 barrels of beer a year. The beer was sold in three ways. First, and by far the most profitable, was through the pub. Second, some beer was sold in half-barrels to restaurants and other pubs in the area. Third, some specialty beers were sold in half-litre bottles to bottle shops—stores in the area that catered to the growing audience of people looking for an interesting beer or searching for a special taste. With this continued growth and success (see Exhibit 1), Isley, Scharfenberg, and Knight wondered what their next steps should be. A ut ho riz ed fo r us e on ly in th e co ur se F N C E 4 47 a t U ni ve rs ity o f C al ga ry ta ug ht b y P eg gy H ed ge s fr om 1 /1 0/ 20 22 to 4 /2 9/ 20 22 . U se o ut si de th es e pa ra m et er s is a c op yr ig ht v io la tio n. Page 2 9B18M010 Pints in the Pub In the pub, a 12- or 16-ounce glass of beer sold for US$51 to $6, depending on the beer. Their biggest seller, Big Mon IPA, sold for $5.50 for 16 ounces; Rubber Room Session Ale was $5.25 for 16 ounces. High- alcohol beers and specialty beers were often sold at a higher price in the smaller glass, so the brewery’s strong Thick Freakness Stout was $6 for 12 ounces. The pub usually had eight or more of its own beers and one or two guest beers from other breweries on tap. Bottled hard cider, a limited selection of wine, and various soft drinks were also sold. The only foods sold were chips and nuts; however, North Carolina law allowed food from outside to be consumed in pubs, if the location did not have a kitchen. One of the regular specials was on one weeknight—if customers ordered a pizza from a certain food truck parked nearby, they got a dollar off their pizza if they bought a beer. The pub opened at 4 p.m. Monday through Wednesday, at 2 p.m. on Thursday and Friday, and at noon on Saturday and Sunday. There was seating for 55 inside and a shaded patio out front that sat about 35. Winter days were mild in Carrboro, and the patio was often crowded, even in January and February—its coldest months. Half-barrels in Restaurants and Specialty Beers in Bottle Shops Selling half-barrels to restaurants and other pubs was more difficult than most people thought. There were only so many taps in any area; if someone added a new beer, someone else’s beer had to be eliminated. Many places had a “rotating tap” that featured different beers at different times; if a brewery sold a half- barrel to be featured in that rotation, it could sell to that place only occasionally. On the other hand, filling and delivering half-barrels was easy, and breweries could rent empty barrels for almost nothing. Steel String charged $190 for a half-barrel of their beers. Big Mon IPA was the beer most often sold in half-barrels. The specialty beers that Steel String bottled were aimed at beer aficionados. The brewery bottled sour beers, beers with fruit flavours, and beers aged for many months in used wooden wine or bourbon barrels. These were bottled using a home-made rig of lumber and tubing. Steel String sold these to bottle shops at a high price, often over $75 for a case of 12 half-litre (roughly 17 ounce) bottles. On the shelf, these bottles retailed for $8 or more. While profitable, putting these beers in bottles using this homemade bottling rig was slow and labour-intensive, and the market for beer at such high prices was limited. In North Carolina, small brewers could deliver packaged beer to stores directly; however, larger brewers, like all brewers in many states, had to use a distributor—a middle-man. This law allowed Steel String to sell its half-barrels and specialty beers directly to restaurants and retailers in the area and get to know the customers directly—a competitive advantage in a market where knowing the target audience was key. Given the active craft brew scene in Carrboro and the surrounding area, the Steel String partners wanted to determine the best way to capitalize on locals’ willingness to pay a premium for good craft beer. Altogether, Steel String sold about 350 barrels of beer through these three channels. The brewery was profitable, but that excess capacity was tempting to the three partners. They really liked making beer, so if they could sell the extra they would happily brew the extra. They also saw it as a business opportunity. More and more, small breweries were putting their beers into 12-ounce bottles and cans—the size most Americans were used to. These smaller containers were then sold in four- or six-packs, just like mass produced beer, though at higher prices. 1 All currency amounts are in US$ unless otherwise specified. A ut ho riz ed fo r us e on ly in th e co ur se F N C E 4 47 a t U ni ve rs ity o f C al ga ry ta ug ht b y P eg gy H ed ge s fr om 1 /1 0/ 20 22 to 4 /2 9/ 20 22 . U se o ut si de th es e pa ra m et er s is a c op yr ig ht v io la tio n. Page 3 9B18M010 Beer in Bottles