Hi,
I cannot understand why in the solution only 120 bottles are sold after the 5th year. I would say he should sell 192 (120+72) bottles, that is also the scenario described in the point of the cellar size.
thanks
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economics of the cellar
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Hi Francesco,
Can you clarify where you're getting 120 bottles from?
The text as I see it says the following:
“Thus at the end of year one, I should have 120+72=192 bottles in the investment section or 242 bottles in the total cellar. After 5 years (in my time accounting), I sell the kick-start of 192 bottles, and the stock drops significantly. In subsequent years, I always buy the same amount of investment wine as I sell (72 bottles per year), and therefore I always have exactly 5*72=360 bottles of investment wine in my cellar in years 6+: the 72 bottles from each of the last five “vintages” I've purchased.”
The case also says:
5. How / when do I sell the investment wine?
Answer: Always after exactly 5 years, no cost of sale, always a buyer, no discounting
So, you're selling your initial investment of 120 bottles in year 5!
(edited)
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Hi Ian, really thanks for the answer. I try to explain better starting from the text of the solution that says "You have the kick-start of $13,500 and then only costs for the first 5 years. After 5 years, you sell the kick-start of 120 investment bottles and get a big push in revenue of 120*$250=$30,000." this is the text of the solution of the economics of the cellar but in my view after the 5th year he should sell 192 bottles (120+72) that would be 48.000$ in revenues. I cannot get the point why in the section sizing, after the 5th year he should sell 192 bottles but, then in the economics valuation, in the same year he can sell only 120 bottles I hope the question is clear Francesco
(edited)