Recommendation: Our recommendation, based on the research reports provided by Manson and Associates, is to pursue the Coors distributorship

in the South Delaware two-county area. This will be the first Coors distributorship in the two-county Southern Delaware area. The total amount needed to pursue the distributorship is estimated at $1,010,000, of which $335,000 will be provided from Larrys trust fund, $400,000 will be provided by Larrys family members, and $275,000 will be provided as a line of credit from the bank. Because of Larrys access to the trust fund and his family members willingness to lend him money to invest in the distributorship, he will borrow less money from the bank. This will allow for fewer payments to the bank in the form of interest as well as provide $125,000 in reserve financing from the bank, and $165,000 in reserve from the trust fund.

Basis for Recommendation: 1. Break even analysis was done in making the decision to go ahead with the investment. The fixed cost is $389,692 which includes employee salaries, utilities, loan payments, advertising and travel expenses. The unit selling price is $4.82 and variable cost is $3.87 which gives a contribution per unit of $0.95. For every unit sold $0.95 is contributed towards the payment of fixed cost. The estimated break even volume needed to pursue the project is 409,685 gallons. 2. The tax approach (Table E) used in finding the industry demand for the market area estimates a consumption of about 5.7 million gallons of beer in a year. Based on the Coors market share estimates for 1990-1995 (Table C), we saw that for the two-county market area based on the total gallons of consumption the market share will be approximately 8.7%. As the brand becomes established in the new market area the market share percentage will increase. Optimistically, the return on investment is about 20 cents for every dollar invested by the family members. 3. Larry has the education and desire to own and operate a small business. He is a hard working individual and sees a great market potential in owning the first Coors distributorship in the South Delaware area. This opportunity will provide a means for Larry to exercise his entrepreneurial drive.

Background: Coors Brewery has announced its intentions to expand operations to the southern Delaware area and is seeking applications from interested parties to manage the local distribution center. Larry compiled information from different sources to analyze and determine if the distributorship represented a good investment. He has consulted with

other beer wholesalers in his area to get an estimate on investment and operating costs. After consulting with his family and the bank, he has determined the amount of capital available. He also contracted with Manson and Associates to provide marketing intelligence reports to assist with his analysis. Using the data gathered by Larry, we have performed a break even analysis to determine the sales volume required to cover operating costs. This information is combined with the expected sales volume to gauge the riskiness of the investment. A sensitivity analysis was also performed to ensure that mild fluctuations in the estimates would not affect the overall decision.

Analysis: Sales Price per Gallon: Cost of Goods Sold = 77.1% of sales Average wholesale price/gallon = 3.16 3.16 * 1.771 = 5.59 wholesale price/gallon (bottles) 5.59 * .45 = 2.52 wholesale price/gallon (kegs) Average wholesale price/gallon = (.75)(5.59) + (.25)(2.52) Average wholesale price/gallon = 4.82 Variable Costs: VC = (5.59)(.771) = 4.31 (bottles) VC = (5.59)(.771)(.45) = 1.94 (kegs) Average variable costs = (.75)(4.31) + (.25)(1.94) * (1.04) = 3.87
Assumption: 4% commission paid to drivers.

Fixed Costs: Salaries Other Advertising Travel Loan Repayment Total: Break-Even Analysis: BE Volume = 389,692 / (4.82 3.87) BE Volume = 409,685 gallons 160,000 90,000 40,000 25,000 74,692 389,692

Assumptions: 15-year loan at 5% from Larrys family and 15-year loan at 10% from the bank.

Industry Demand: Demand = Taxes Paid / Tax Rate 1988 Demand = 288,000 / .06 = 4,800,000 gallons 1989 Demand = 306,000 / .06 = 5,100,000 gallons 1991 Demand = 5,100,000 + (5,100,000 4,800,000) * 2 = 5,700,000 gallons
Assumption: Steady demand growth over the next 2 years.

Expected Sales Volume: Expected Volume = Industry Demand * Market Share Expected Volume = 5,700,000 * .087 Expected Volume = 495,900 gallons

Sensitivity Analysis:
Unit Price Fixed Costs Var Costs BE Volume BE Sales Demand Market Share Sales Volume % over BE Qty Sales Revenue Total Costs Net Revenue $ $ $ $ $ $ Best Case 5.12 366,775 3.64 248,874 1,272,996 5,800,000 9.0% 522,000 209.7% 2,670,042 2,267,525 402,517 $ $ $ $ $ $ Base Case 4.82 389,692 3.87 409,685 1,974,681 5,700,000 8.7% 495,900 121.0% 2,390,238 2,308,230 82,008 $ $ $ $ $ $ Worst Case 4.54 413,544 4.11 959,625 4,353,382 5,600,000 8.4% 470,400 49.0% 2,133,991 2,344,819 (210,828)

We first set up a base case analysis using the above calculated estimates as variable amounts. We then allowed for either a positive or negative fluctuation for the following estimates: Total Industry Demand Estimated Market Share Sales Price per Gallon

Variable Costs per Gallon Fixed Operating Costs

Using the base estimates, we expect Larry will be able to move 495,000 gallons, which is 21% greater than the break-even amount and leads to net revenue of around $82,000. However, given the worst case scenario, it would be possible to miss the breakeven target and lose close to $210,000. We feel the chances of this occurring are slight, however, and smaller changes that would be more likely to occur still resulted in exceeding the break-even sales volume.

Next Steps: In order to proceed with the decision to apply for the Coors distributorship Larry has several items he must accomplish before the March 5 application deadline. Larry must ensure that the distributorship application is completed accurately and professionally in an effort to differentiate his abilities from those of other applicants. The effort must not stop once the application is complete. To help ensure a successful start to this endeavor it would be wise to consider and prepare for the actions that will be required once the application is accepted. 1. Complete the Coors distributorship application including a professional representation of the aforementioned break-even and sensitivity analyses. Include with the application written letters of available funding provided by the family members, the banker and the trust fund. 2. Solicit from a realtor a list of potential sites and price estimates for a physical location; from a general contractor an estimate to remodel any existing warehouses available as indicated by the realtor, or an estimate to build a new warehouse; and from an insurance agent an estimate for coverage of the business assets and employees. 3. Consider and formulate a list of potential candidates from former classmates, coworkers or other acquaintances that may be valuable candidates for the positions of route salespeople, secretary, and warehouse manager. We feel that these recommendations will allow Larry to obtain the Coors distributorship for the South Delaware two-county area, exercise his entrepreneurial spirit, and provide a satisfying return-on-investment for himself, his family, his bank, and for the Coors brand.