Bulldog Craft Brewery Calculating Net Present Value Finance Case Bull Dog is a craft brewery and pub located in Carrboro, North Carolina. In a span of thre

Bulldog Craft Brewery Calculating Net Present Value Finance Case Bull Dog is a craft brewery and pub located in Carrboro, North Carolina. In a span of three years, the owners have established a successful and profitable brewery in a competitive market. However, the owners now need to decide whether they should invest in equipment and labor to bottle some of their best selling beer. This case gives students the opportunity to use skills in reflective thinking, analysis, ethical understanding, and reasoning. After completion of this case, students will be able to:

Calculate net present value (NPV),
Assess those strategies the company might choose to promote its growth in the brewing industry,
Evaluate those strategies to decide on the best fit for the company with the environment and the community,
Explain how various pricing strategies would impact the company’s bottom line, and
Give detailed reasons for a specific choice.

The Deliverable

Please write a 2 -3 page paper (single-spaced within paragraphs, double-spaced between paragraphs, 1 inch standard margins, 12 PT Times Roman font) answering each of the questions below. Submit your paper in Word and label the file LastName-AOLNPV.docx. Also submit your Excel file to calculate NPV and call that LastName-AOLNPV.xlsx. Do not place your name inside of any of the documents.

Introduction: Summarize the case in your own words. Is the brewery ready to expand?
NPV Calculation: Create an Excel spreadsheet to calculate the net present value of investing in bottling (including the purchase of the label machine and training). Do not include the calculation of NPV in your paper, but describe the NPV for this project in your paper and create a table (call this Figure 1) highlighting the key assumptions made and your answer. Be definitive. Would you or would you not invest in this project?
Optional: Sensitivity Analysis (price of beer): How sensitive is the investment decision to the price of beer? The owners chose to sell its beer at a high price. Would the investment decision be the same if the beer sold for $1.00 less per six-pack at retail? Recalculate the NPV and be definitive. Would you or would you not invest in this project?
CSR: The partners discussed more engagement in other social responsibility initiatives as they continue to grow. Describe initiatives Bull Dog could engage in to help its own triple bottom line (Social, Environmental, and Financial)?
Conclusion: After evaluating NPV, what would you suggest should be Bull Dog’s next steps? In light of the financials, how should this brewery move forward with the project? Income Statement Ending October 2018
Ordinary Income
Sales
Bar
Kegs
Keg deposits and refunds
500 ml bottles
Other
Festival income
Total Income
$472,198.64
$54,432.74
$1,740.39
$50,333.30
$20,608.59
$24,349.70
$550.54
$624,213.90
Cost of Goods Sold
Purchases
Beer
Food
Glassware
Shirts, etc.
Wine
Cost of other goods sold
Bottles
Malt and hops
Yeast
Total
$23,714.00
$10,022.26
$6,173.64
$4,111.93
$5,783.94
$40,860.86
$15,803.03
$33,761.76
$5,720.03
$145,951.45
Gross profit
$478,262.45
Expenses
Barrels
Keg rentals
Other brewery supplies
Draft line cleaning
Advertising and promotion
Bar equipment
Automobile expense
Amortization expense
Bank fees
Computer and internet
Software
Continuing education
Depreciation
Donations
Permits
Dues and subscriptions
Meals and entertainment
Hotel
Insurance
Bar supplies
Office supplies
Miscellaneous
Uncategorized
Payroll taxes
Postage and delivery
Professional fees
Performer fees
Festival expense
Festival advertising
Rent
Construction costs
Repaid and maintenance
Guaranteed pmts to partners
Payroll – employees
Payroll fees
Taxes, licenses, permits
Cable, internet and phone
Travel expense
Utilities
Interest expense
Total expense
$3,681.45
$8,580.59
$4,375.20
$214.50
$5,159.58
$87.00
$5,569.97
$823.91
$389.00
$583.50
$654.90
$234.00
$39,925.68
$10,313.02
$260.00
$2,189.53
$2,533.26
$502.16
$13,197.77
$13,787.19
$1,132.45
$990.00
$10.00
$13,487.69
$2,883.15
$24,283.05
$7,938.30
$10,587.07
$500.00
$74,503.68
$17,662.53
$3,939.71
$12,300.00
$130,912.66
$1,702.76
$33,274.15
$2,612.04
$4,923.25
$17,046.04
$2,378.13
$476,128.87
Balance Sheet Year Ending October 2018
Assets
Current Assets
Checking
Money market
Petty cash
Total
Accounts receivable
Other Current Assets
Undeposited funds
Inventory
Total
Total Current Assets
Fixed Assets
Brewing equipment
Bar furniture and equipment
Computer equipment
Leasehold improvements
Accumulated depreciation
Start-up costs
Accumulated amortization
Total Fixed Assets
Total assets
$35,786.10
($18,527.58)
$1,200.00
$18,458.52
$4,601.37
$8,098.49
$6,574.25
$14,672.74
$37,732.63
$88,019.74
$212,628.76
$1,824.22
$184,561.64
($292,928.00)
$12,358.70
($2,746.37)
$203,718.69
$241,451.32
Liabilities & Equity
Liabilities
Current Liabilities
Accounts payable
Credit cards
Sales tax payable
FICA tax payable
Fed withholding tax payable
State withholding payable
Fed use tax payable
State use tax payable
Loans payable
Total Current Liabilities
Long-Term Liabilities
Member loans
Bank loans
Total
Total Liabilities
Equity
Member equity
Retained earnings
Member distributions
Net Income
Total Equity
Total Liabilities and Equity
$1,347.00
$9,016.90
$3,232.00
$2,211.92
$2,012.01
$820.00
$381.83
$684.45
$26,275.11
$45,981.22
$350,000.00
$160,967.21
$510,967.21
$556,948.43
($318,218.65)
$46,595.22
($123,296.61)
$79,422.93
($315,497.11)
$241,451.32
Bull Dog Brewery:
Three year old Bull Dog Brewery was owned by three friends – Will Irving (the brewer), Andrew Simpson
(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 Bull Dog 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 regular employees – Jesus Kino (assistant brewer), Steven Horton (pub manager) and Alfred Kilzi.
They also had a group of bartenders who worked a shift or two each week. However, at the start of
2017, the co-owners began grappling with a question?
1. Should they begin to invest in the machinery and labor to start bottling their beer?
2. Should they consider different pricing strategies?
3. What additional ways could they look at for giving back to their community through their social
responsibility efforts?
Craft Brewing
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-liter 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.
Financial Constraints
In the pub, a 12 or 16-ounce glass of beer sold for US$5 to $6, depending on the beer.
1. Its biggest seller, Big Mon IPA, sold for $5.50 for 16 ounces
2. Rubber Room Session Ale was $5.25 for 16 ounces
3. High-alcohol beers and specialty beers were sold at a higher price in the smaller glass, so the
brewery’s strong Thick Freakness Stout was $6.00 for 12 ounces.
4. The pub usually had 8 or more of its own beers and one or two guest beers from other
breweries on tap.
5. Bottled hard cider, a limited selection of wine, and various soft drinks were also sold
6. 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.
7. One of the regular specials was on one weeknight – if customers ordered a pizza from a certain
food truck parked nearby, they go a dollar off their pizza if they bought a beer.
The pub opened at 4pm Monday through Wednesday, at 2pm 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.
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Selling to Restaurants and 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. Bull Dog 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 Bull Dog bottled were aimed at beer aficionados. The brewery bottled sour
beers, beers with fruit flavors, and beers aged for many months in used wooden wine or bourbon
barrels. These were bottled using a homemade rig of lumber and tubing. Bull Dog sold these to bottle
shops at a high price, often over $75 for a case of 12 half-liter (about 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 labor-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 Bull Dog 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 Bull Dog partners wanted to
determine the best way to capitalize on locals’ willingness to pay a premium for good craft beer.
Altogether, Bull Dog 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.
Beer in Bottles
The partners were confident that they could sell the beer from their excess capacity by packaging their
best-selling beers in four- and six-packs of 12-ounce bottles. But, would it be profitable? Big Mon was
incredibly popular and was expected to bring a higher than usual premium in bottle shops, retailing for
$13.99 per six-pack, while Rubber Room was expected to sell for $11.99 at the bottle shop. Wholesale
price was just under 75% of the retail price for craft beer sold to bottle shops. For example, the
wholesale price for a case of 24 bottles would be $41 for Big Mon and $35 for Rubber Room. The
partners also planned to sell some seasonal beers in four-packs of bottles or cans. They figured on a
wholesale average price of $38 per case.
There was a lot involved in bottling. Buying a canning or bottling machine, getting labels and six-pack
carriers, choosing between cans and short or tall bottles and getting a loan were a few of the things that
came to mind. They had decided to look into it, and Simpson, the business manager, had started making
calls and talking to other small brewers in the area.
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First, they needed to figure out how many cases (each with 24, 12-ounce bottles or cans) they could
make if they put all of their excess capacity into making packaged beer. A beer barrel was 31 U.S.
gallons, or 3,968 ounces. But no manufacturing process was perfect, so they needed to account for
some spilled beer and poorly fitted bottles – maybe 5% wastage – while getting the beer into the
bottles. Bull Dog’s equipment was set up to brew seven-barrel batches. Irving figured that it would cost
about $1,100 for each batch of the beers they expected to sell in four- and six-packs of 12-ounce bottles.
However, the specialty beers they sold in the half-liter bottles and in the smaller glasses in the pub often
cost more to brew.
After a lot of searching, Simpson found a bottling machine he thought was right for Bull Dog. This
machine had two filling heads, and once it was set up and running, filled about eight bottles per minute.
Starting it up and getting everything adjusted took about 30 minutes, as did cleaning everything when
bottling was over for the day. To operate it, two people were needed to keep things adjusted, take
empty bottles from cases, feed them into the machine, and then take full ones off the machine and put
them back in the cases. The sales material from the machine manufacturer implied that two workers
would need about 5 hours to set up the machine, fill 50 or 60 cases, and clean everything afterwards.
The machine worked best if the operators labeled the bottles first and put empty, labeled bottles in sixpack carriers in the cases. The machine would cost Bull Dog $40,452 delivered to their brewery. Training,
including gravel and accommodation for a night or two in a motel, would cost another $1,500. However,
the travel could be considered a relevant excursion because they would pass through the craft-beer hot
spot of Asheville, North Carolina on the way.
Packaging materials were more expensive than people generally believed, based on the fact that
consumers usually recycled them or threw out empty ones without considering their cost. The shorter
bottles, which worked with the bottling machine that Simpson liked, cost $0.24 each. Each label cost
$0.04, including running it through the labeler, and the crown (the official name for the bottle cap) was
$0.01. All the cardboard – the four- or six-pack carriers and the heavy corrugated case itself – came to
almost $2 per case. The company would then have to buy a labeling machine for $1,750 and those full
cases would have to be delivered to the bottle shop shelves or restaurant coolers. If the company
packaged 50 to 60 cases each week, distribution would take the driver an average of about 10 hours per
week. A van was needed that would hold much more than the cars the company had been using for
distribution of the half-barrels and specialty beers. The purchase of a van would cost about $450 per
month. Bas and the driver’s wages would come to about $150 per week.
Social Responsibility
Even though Bull Dog was a small start-up business, social responsibility was important to the partners.
The company paid all its workers at least the local living wage of $12 an hour for those who received tips
and $13 for others. The spent grain left over after brewing was picked up by a local farm for composting.
Fundraisers were hosted for many local organizations. The company allowed voter registration officials
to set up a table at the pub and to hold campaign events that kicked off voter registration in the area.
The partners joined the Bike-Friendly Business Program in Carrboro, which was created by a bicycle
advocacy group called the Carrboro Bicycle Coalition. This organization recognized businesses that
supported and encouraged employees to bike or walk to work when possible. Bull Dog joined this
program in 2014 and renewed its membership each year. As the company continues to grow, it looks
forward to engaging in other socially responsible projects and in expanding the way it sells beer.
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Financial Statements
From the balance sheet, the three partners did not have much extra capital for themselves after getting
the brewery started. However, Bull Dog had a good credit record. It paid all its bills on time, including a
bank loan to cover some of the costs of getting started, and the bottling machine could be used as
collateral. Also, interest rates were low after a few years of low inflation and a soft economy. Simpson
thought he could get a bank loan at 5.9% for four years, which was the extent of their future forecast.
Taking out another loan and starting a new (though related) line of business was a big undertaking.
Simpson, Knight, and Irving now needed to decide: should they start bottling Big Mon IPA, Rubber Room
Session Ale, and some other beers?
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