Stone Creek Vineyards 2000 Case Solution

Case Solution

Stone Creek vineyard was purchased by the people of stone sisters in mid 1950's. At to start with, these vineyards were not used for business purposes. To reduce the general cost chance, the people of the stone sisters orderly traded the obligation regarding vineyard to their young ladies. In mid 1990s, both the young ladies took control of the vineyard and produced the base essential to develop the business on an immense scale. Inside delivered trusts were by no means whatsoever, sufficient to support this augmentation program. Thusly, gigantic measures of commitments were acquired to meet the capital needs to deal with the expansion program. Then again, notwithstanding after 10 years, the association couldn't end up being monetarily self-sufficient was still dependent on external financing. The stone sisters were taking off to of choices for outside financing. Mr. Arthur Malone made an offer to make an a good representative for the association, and meanwhile allow both the sisters to stay as administrators for next ten years.

Excel Calculations

EBIT (1-T)

Depreciation and Amortization

Changes in Capital Expenditures

Changes in Net Working Capital

Free Cash Flows

External Financing Needs

Income Statement (5% scenario)

Balance Sheet (5% scenario)

Income Statement (10% scenario)

Balance Sheet (10% scenario)

Income Statement (20% scenario)

Balance Sheet (20% scenario)

Free Cash Flows 5%

Free Cash Flows 10%

Free Cash Flows 20%

Questions Covered

What are the unique characteristics of this industry and the company that result in the financial challenges being faced by the Stone sisters? Make certain to mention the firm’s current goals, objectives and strategies.

Perform a SWOT analysis.

Evaluate the operating and financial performance of Stone Creek over the last 5 years. Why has the firm required the extensive use of external financing the last 5 years when profits have been positive and margins have expanded?

How have the Stone sisters met their financing needs over the 5 years? Examine all sources and uses of funds and comment on management’s decisions as far as effectiveness. Has Stone Creek’s financial strength increased with its apparent success in the marketplace?

Create pro forma Income Statement and Balance Sheets for the next 2 years using a. Only internally generated funds (5%) b. Internal and external funds that keep debt/total capital and short term/long term debt ratios constant (10%). c. With funding to aid the continued 20% growth rate. d. Compute the Free cash flow under each assumption.

Comment on the projects with respect to the overall financial strength of Stone Creek using the ratios that we have prepared and discussed during class.

If you were Mr Serrano would you make the loan?

Evaluate the valuation provided by calculating the Free Cash Flow of Stone Creek for years 1996 to 1999 by using the free cash flow computed in question 5.

Is the 11 million dollar offer reasonable?

How should the Stone sisters resolve their dilemma? (I.e. pick a growth rate and financing method that maximizes value.