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