Larry should evaluate this investment before decision making. To evaluate this investment, we conducted NPV analysis with several assumptions. Based on our analysis, the net present value is $511,463 that means this investment give the opportunity that he makes profits as returns under 10% discount rate.
Thus, we decide he should start this distributorship right now unless he finds other investments or opportunities which have 30.6% returns rate.Market Size and Sales(Base on Research A, C and E)
First of all, we estimated future market size. From Research E, we calculated total sold beer of each year, 1997 and 1998. And then we calculated the growth rate of beer consumption per a person.
To obtain future market size, we estimated the market size will increase by the beer consumption rate in each year. And then we can see future possible sales in the market by multiplying market share estimate of Research C.
<Table 1> Forecasting market size and sales of Larry
| 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 |
Consumption (g)/a person | | 38.3 | 39.3 | 39.4 | 41.9 | 46.5 | 48.8 | 51.3 | 53.9 |
Growth Rate (%) | | | 2.6% | 0.3% | 6.3% | 11.0% | 5.0% | 5.0% | 5.0% |
Market Size(g) | 4,799,667 | 5,100,000 | 5,233,159 | 5,246,475 | 5,579,373 | 6,191,906 | 6,504,429 | 6,832,725 | 7,177,592 |
Market Share (%) | 8.9% | 8.7% | 8.7% | 8.8% | 8.8% | 8.8% |
Total sales (g) | 466,936 | 485,405 | 538,696 | 572,390 | 601,280 | 631,628 |
1) The beer consumption after 2002 were estimated by 5% as the average growth rate of beer consumption 1998-2002.<Exhibit 1> Future market size and potential sales of LarryPricing and Revenue (Base on Research G and Table 1)
According to the research G, the consumers feel that Coors is premium, good taste and upper class. So we can set whole sales price is higher than Budweiser and Miller.
We assume the 6 pack can (or bottle) and keg sales of total sales are 75%…