Cavaras Essay

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Calaveras Vineyards 1. What is the value of Calaveras Vineyards? Is the proposed purchase price for Calaveras Vineyards appropriate? Prepare a discounted-cash-flow valuation of Calaveras, using the attached supplemental exhibit and your estimate of Calaveras’s weighted average cost of capital. Do you have any concerns about the suitability of the listed “pure-play” comparable companies? Might these concerns bias your estimate of value in any direction? Perform a sensitivity analysis on assumptions that you suspect to be “key value drivers”—what are the insights you derive from this analysis? Consider other methods of estimating Calaveras’s value, including book, liquidation, and multiples methods. 2. Would Calaveras be a creditworthy borrower? What are the principal risk factors in this prospective credit? Can Calaveras adequately service the proposed amount of debt? What other considerations might influence your evaluation of this firm as a prospective borrower? 3. What should Anne Clemens do? Prepare a recommendation for action by Goldengate Capital. If you are inclined to participate in the loan, identify any issues that will warrant careful continued monitoring. If you are not inclined to participate on the terms as outlined in the case, then prepare a counterproposal to NationsBank indicating terms on which you would be willing to participate. Clarification to students of two minor points: (1) At the moment of closing of the deal, Calaveras will have no receivables as Stout PLC will keep them. This reflected Dr. Lynna Martinez’s dissatisfaction with the former marketing company and her uncertainty about the actual value of those receivables. (2) Case Exhibit 6 presents the historical performance of Calaveras as if it were a “stand-alone” company, and excludes intercompany sales to Stout PLC of wine for

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