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Robert Montoya

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Submitted By airaafrica07
Words 974
Pages 4
De La Salle University – Manila
Ramon V. del Rosario College of Business

Critique Paper on
Robert Montoya, Inc. (A)

In Partial Fulfillment of the Requirements in FNC535M – Financial Management

January 20, 2016

Background of the Case:
Robert Montoya, Inc. (RMI), one of the biggest wine producers in the United States, is planning to expand on its product offerings.

RMI is owned by Robert Montoya, his brother and a few partners which sells wine throughout the world. However, one of its products, wine coolers, has been recording a decline in sales. To address this, the management is looking into expanding its product offerings, to include Suave Mauve, a premium variety of wine which uses the cabernet sauvignon grape. The new product is targeted for the middle-to upper-income professionals. It would be positioned between the traditional table and wines and super premium table wines.

The management has assigned Sarah Sharpe, RMI FVP for Finance, to assess the new venture along with two other possible investments.

Below are the details of the planned project:

ITEM | REMARKS | Production facility location | At the unused section of the main plant | New Machinery | $2,200,000 | Shipping Cost | $80,000 | Installation | $120,000 | Increase in inventory due to the new wine variant | $100,000 | Cash flow | Assumed to occur at the time of initial investment | Machine remaining economic life | 4 years | Salvage value after 4 years | $150,000 | Depreciation under MACRS 3 year class life | Depreciation allowance 0.33 (Yr.1), 0.45 (Yr.2), 0.15 (Yr.3), 0.07 (Yr.4) | Site rehabilitation (previous year) | $300,000 | Sales projection for 4 years | 100,000 bottles at $40 each | Cost per bottle | $32 | Cannibalization effect | ($60,000) | Tax savings | $40,000 | Federal-plus-state tax rate | 40% | Cost of Capital (WACC) | 10%

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