Arizona Wine County

Data Sources

For purposes of coming up with the best possible answer to offer advice to Mr. Smith, the consultants have used sources available at the University of Arizona. This information has been used by the consultant to evaluate the possible risks and possible opportunities presented by the company statistics. In this case, net cash flow from the vineyard has been used to verify Mr. Johnson’s Claims. Therefore, in order to come with the excellent option for Mr. Smith to invest, the consultant are independent coming up with an unbiased decision. It should be noted that the purposes of this exercise is to establish whether Mr. Johnson claims are valid for Mr. Smith to make any investments basing this claims.

Risk Selection

Using the conventional method of growing degree-days (GDD) in selecting viticulture site in Arizona it will not be practical. This is because the model does not have the capability to select possible viticulture zones in whole of the state. These results are according to a research conducted by the University of Arizona. Moreover, there is no historical evidence to be used to make the decisions. Therefore, to reduce this potential risks, premium wine grapes should be planted on a trial basis. However, other methods could be used to establish whether it will be viable to take the risks. For instance, the weather for Arizona is desert like causing the plantation to produce poor fruits. This eventually results in poor results. For this reason, to come up with better results it is highly advisable to take soil samples in Arizona and have them tested by competent authorities that will give quality results as to whether the plantations are going to yield excellent results if they are planted in Arizona.

Analytical Models

This is done for the purposes of establishing whether Mr. Johnson claims of 20%-25% returns are reliable. In this case, the consultants have analyzed the investments by using the net cash flow of the vineyard in Arizona. In this case, they have used a twenty-year plan. In this case, a model has been introduced using the modern rate of return where the reinvestment rate is eight percent and the financial rate is eight percent.

Results

According to the plan, the vineyard would produce the most promising results if the costs were to be minimized or controlled increasing profits generated. In this case, the most viable option would be to decrease costs by ten percent and increase profits generated by twenty percent. However, in case the vineyard had a bad season with decrease of profits by fifteen percent and cost increase of thirty percent those who have invested would still enjoy a modern internal rate of return of thirty percent.

Results of selling the vineyard

Results of not selling the vineyard

In this situation, if the investors decide to sell the vineyards after twenty years they are likely to receive a higher modern internal rate of return as compared to when they do not sell the vineyard. This is because the vineyard would be expected to increase value by three percent. For this reason, Mr. Smith should take the option of selling the vineyard after twenty years having used it for plantations.