field of dreams wheat, inc[1][1]
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Field of Dreams Wheat, Inc.Norma Cisneros
Pradnya DeshpandeStephanie CocoMaggie Counts
Salima Dhamani
Introduction
Why wheat? Why Israel? Why North Dakota? Ease of doing business with
Stage I
Export wheat to Israel› Staple ingredient› Domestic supply insufficient› 3rd in region for World Bank’s Ease of Doing
Business Index and World Economic Forum’s Global Competitiveness Report
Export from fields in North Dakota› Temperate climate› High yielding soil› Easy transport
Competition
Black Sea Producers› Russia› Ukraine
Disadvantages› Production costs› Freight costs
Advantages› Quality and uniformity› Storage and transportation› Social issues› Well-established trade relationship
Payment
Prepayment › First three transactions, and
Cumulative payment of 2,000,000 ILS Relations for 6 months
Letter of credit
Open Accounts
Subsidiary
Ashdod, Israel› Largest shipping port
Milling and packaging
Acquisition
Currency
8/1/
2009
8/7/
2009
8/13
/200
9
8/19
/200
9
8/25
/200
9
8/31
/200
9
9/6/
2009
9/12
/200
9
9/18
/200
9
9/24
/200
9
9/30
/200
9
10/6
/200
9
10/1
2/20
09
10/1
8/20
09
10/2
4/20
09
10/3
0/20
090.245
0.25
0.255
0.26
0.265
0.27
0.275
Series1
Shekel to USD- 3 months
Currency
10/1
/200
9
10/3
/200
9
10/5
/200
9
10/7
/200
9
10/9
/200
9
10/1
1/20
09
10/1
3/20
09
10/1
5/20
09
10/1
7/20
09
10/1
9/20
09
10/2
1/20
09
10/2
3/20
09
10/2
5/20
09
10/2
7/20
09
10/2
9/20
09
10/3
1/20
090.262
0.263
0.264
0.265
0.266
0.267
0.268
0.269
0.27
0.271
0.272
Series1
Shekel to USD- 1 month
Currency
11/1
/200
8
11/2
1/20
08
12/1
1/20
08
12/3
1/20
08
1/20
/200
9
2/9/
2009
3/1/
2009
3/21
/200
9
4/10
/200
9
4/30
/200
9
5/20
/200
9
6/9/
2009
6/29
/200
9
7/19
/200
9
8/8/
2009
8/28
/200
9
9/17
/200
9
10/7
/200
9
10/2
7/20
090.21
0.22
0.23
0.24
0.25
0.26
0.27
0.28
Seri...
Shekel to USD-1 Year
Currency
Coefficient 2010 2011 2012 2013 2014
Intercept5.29624815
1 5.296248151 5.296248151 5.296248151 5.296248151 5.296248151
Consumer Price Index
0.062487676 101.21925 100.42425 100.82175 100.623 100.722375
Lending Interest Rate
-0.09356781
8 5.027625 5.265875 5.14675 5.2063125 5.17653125
Real GDP
-0.04062613
7 173.53345 172.95185 173.24265 173.09725 173.16995Exchange Rate 4.100786297 4.052444223 4.07661526 4.064529742 4.070572501
Five Year Exchange Rate Forecast
Currency
R2 = 0.88625 Inputs:
› Real GDP› Consumer Price Index› Lending Interest Rate
Hedging
Currently unnecessary
Options
Futures
Weighted Average Cost of Capital
WACC CalculationDebt 30%Equity 70%Corporate tax rate (U.S.) 35%Industry Beta 0.8Risk free rate 3.5%Country risk 2.1%Market return 7.3%Return on debt 5.3%Return on equity 6.5%WACC 7.71%
NPV Analysis
Field of Dreams Wheat, Inc.
Subsidiary NPV Analysis
Wheat Production/ yr (bushels) 5,000,000
Flour Production/yr (bushels) 3,869,864
Annual Growth Rate 3%
Production Cost/bushels ₪ 53.09
Sales Price per bag of flour ₪ 61.73
Packaging and Transport/bushel ₪ 2.26
Taxes (Israel) 26%
Depreciation years 5
% remitted by subsidiary 100%
Witholding tax on remitted 15%
Expected annual revenue growth 3%
WACC 7.71%
NPV AnalysisYEAR 2009 2010 2011 2012 2013 2014
Initial Investment ₪ 3,764,000.00
Bags of Flour Sold 3,869,863.82
3,985,959.74
4,105,538.53
4,228,704.69
4,355,565.83
Revenue
₪ 238,885,145.94)
₪ 246,051,700.32
₪ 253,433,251.33
₪ 261,036,248.87
₪ 268,867,336.33
COGs ₪ 205,441,225.51
₪ 211,604,462.27
₪ 217,952,596.14
₪ 224,491,174.03
₪ 231,225,909.25
Packaging and Transport ₪ 8,739,700.46
₪ 9,001,891.48
₪ 9,271,948.22
₪ 9,550,106.67
₪ 9,836,609.87
SG&A ₪ 14,333,108.76
₪ 14,763,102.02
₪ 15,205,995.08
₪ 15,662,174.93
₪ 16,132,040.18
Other exp ₪ 188,200.00
₪ 188,200.00
₪ 188,200.00
₪ 188,200.00
₪ 188,200.00
Depreciation ₪ 752,800.00
₪ 752,800.00
₪ 752,800.00
₪ 752,800.00
₪ 752,800.00
Earnings before taxes ₪ 3,764,000.00
₪ 9,430,111.21
₪ 9,741,244.55
₪ 10,061,711.89
₪ 10,391,793.24
₪ 10,731,777.04
Taxes (Israel Corp. Tax Rate 26%) ₪ 2,451,828.92
₪ 2,532,723.58
₪ 2,616,045.09
₪ 2,701,866.24
₪ 2,790,262.03
Earnings after taxes ₪ 3,764,000.00
₪ 6,978,282.30
₪ 7,208,520.97
₪ 7,445,666.80
₪ 7,689,927.00
₪ 7,941,515.01
Net Cash Flow to Subsidiary ₪ 3,764,000.00
₪ 7,731,082.30
₪ 7,961,320.97
₪ 8,198,466.80
₪ 8,442,727.00
₪ 8,694,315.01
Withholding tax on Remittance ₪ 1,159,662.34
₪ 1,194,198.15
₪ 1,229,770.02
₪ 1,266,409.05
₪ 1,304,147.25
Money Remitted after Withholding Taxes
₪ 3,764,000.00
₪ 6,571,419.95
₪ 6,767,122.82
₪ 6,968,696.78
₪ 7,176,317.95
₪ 7,390,167.76
Salvage Value ₪ 2,500,000.00
Exchange Rate 0.26567 0.243855672 0.246764655 0.24530154 0.246030922 0.245665689
Net Cash flow to Parent (in USD) $ 999,981.88
$ 1,602,478.03
$ 1,669,886.73
$ 1,709,432.05
$ 1,765,596.12
$ 2,429,674.88
PV of Cash Flows $ 999,981.88
$ 1,487,770.90
$ 1,439,378.33
$ 1,367,992.65
$ 1,311,798.90
$ 1,675,976.92
NPV
$ 6,282,935.82
Country Risk
Economic Factors› Economic Crisis› Undercut Prices by Black Sea Competitors
Political Factors› Cultural Conflicts› Foreign Intervention
Competitive Factors› Stybel Flour Mills› Family Mills
Exit Strategy
Salvage value = 2,500,000 ILS
Sell as a whole or in parts
Exchange Rate Exposure
Transaction
Economic
Translation
Transaction ExposureCash Flow Model
Year 2009 2010 2011 2012 2013 2014Cash Inflows (New Shekel)
₪ 0.00
₪ 238,885,145.94
₪ 246,051,700.32
₪ 253,433,251.33
₪ 261,036,248.87
₪ 268,867,336.33
Cash Outflows (New Shekel)
₪ 0.00
₪ 228,702,234.73
₪ 235,557,655.77
₪ 242,618,739.44
₪ 249,891,655.62
₪ 257,382,759.29
Net₪ 0.00
₪ 10,182,911.21
₪ 10,494,044.55
₪ 10,814,511.89
₪ 11,144,593.24
₪ 11,484,577.04
Exchange Rate
$0.266 $0.244 $0.247 $0.245 $0.246 $0.246
Net Exposure $0.00
$2,483,160.66
$2,589,559.28
$2,652,816.42
$2,741,914.55 $2,821,366.54
Exchange Rate Exposure
Transaction
Economic
Translation
Conclusion
NPV = $6,282,935.82
Benefits outweigh costs
Competitive advantage attainable
Questions
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