SOLUTION Finance Simulation M&A in Wine Country V2

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TEACHING NOTE




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Finance Simulation: M&A in Wine Country
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, Table of Contents




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Quick Start Guide .......................................................................................................................................... 6

Key Information ......................................................................................................................................... 6
Running the Simulation ............................................................................................................................. 6




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Learn More ................................................................................................................................................ 6
Getting Started.............................................................................................................................................. 7
Teaching Note ............................................................................................................................................... 7
Overview .................................................................................................................................................... 7




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Before Getting Started .............................................................................................................................. 7
Synopsis ..................................................................................................................................................... 8
Learning Objectives ................................................................................................................................... 8
Audience .................................................................................................................................................... 8
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Introducing the Simulation to Students .................................................................................................... 9
Overview of the Simulation .................................................................................................................... 9
Teaching with the Simulation .................................................................................................................... 9
Session 1 ............................................................................................................................................... 10
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Next Steps (PPT slide 10) ...................................................................................................................... 16
Session 2 ............................................................................................................................................... 17
Technical Guide ........................................................................................................................................... 31

Adopting the Simulation and Enabling Student Access........................................................................... 31
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Simulation Overview ................................................................................................................................... 33
Student User Screens .............................................................................................................................. 33
Prepare, Analyze, and Decide............................................................................................................... 33
Prepare  How to Play ........................................................................................................................ 33
Prepare  Valuation Exercise .............................................................................................................. 34
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Prepare  Introduction ....................................................................................................................... 35
Prepare  Historical Stock Price.......................................................................................................... 35
Analyze  General Navigation ............................................................................................................ 35
Analyze  [Company]  Operating Assumptions: Modify Assumptions ........................................... 37



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, Analyze  [Company]  Financials: Income Statement .................................................................... 38




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Analyze  [Company]  Financials: Balance Sheet............................................................................ 38
Analyze  [Company]  Financials: Cash Flow Statement ................................................................ 39
Analyze  [Company]  Financials: Ratios and Growth Rates .......................................................... 39
Analyze  [Company]  Financials: Ratios and Growth Rates .......................................................... 40




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Analyze  [Company]  Valuation Methods: WAAC-Based DCF....................................................... 40
Analyze  [Company]  Valuation Methods: Discount Rates + TV ................................................... 41
Analyze  [Company]  Valuation Methods: Comparable Companies............................................. 42
Analyze  [Company]  Valuation Methods: Comparable Transactions .......................................... 42




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Analyze  [Company]  Valuation Methods: Adjusted Present Value ............................................. 43
Decide  Make Decisions – Round 1................................................................................................... 43
Decide  Make Decisions – Round 2................................................................................................... 44
Analyze  Calculators: Share Exchange Calculator ............................................................................. 45
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Analyze  Calculators: Accretion/Dilution Calculator......................................................................... 46
Decide  Make Decisions – Round 2................................................................................................... 46
Analyze  Calculators: Leverage Decision Calculator ......................................................................... 47
Analyze  Consolidated: Consolidated Income Statement ................................................................ 47
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Decide  Consolidated: Consolidated Balance Sheet ......................................................................... 48
Analyze  Consolidated: Consolidated Cash Flow Statement ............................................................ 48
Prepare  Introductions...................................................................................................................... 49
Faculty Administration Screens ............................................................................................................... 50
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Class Summary  Overview ................................................................................................................ 50
Class Summary  Scores ..................................................................................................................... 51
Class Summary  Reservation Prices .................................................................................................. 52
Class Summary  Final Stock Prices .................................................................................................... 53
Team Results  Stock Price History .................................................................................................... 53
Team Results  Deal Price Outcomes ................................................................................................. 54
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Team Results  ZOPA .......................................................................................................................... 55
Simulation Setup  General Settings .................................................................................................. 55
Simulation Setup  Manage Users...................................................................................................... 56



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, Simulation Setup  Valuation Exercise ............................................................................................... 57




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Simulation Setup  Facilitator Materials ............................................................................................ 57
Simulation Setup  User Materials ..................................................................................................... 58
Appendices.................................................................................................................................................. 59
Appendix A: Simulation Foreground Reading ......................................................................................... 59




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Finance Simulation: M&A in Wine Country Introduction to Industry and Companies ......................... 59
Appendix B: Simulation Summary Text and Confidential Instructions by Role ....................................... 64
I. Bel Vino Corporation ......................................................................................................................... 64
II. Starshine Vineyards .......................................................................................................................... 66




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III. International Beverage Corporation ............................................................................................... 67
Appendix C: Description of the Simulation’s Financial Models ............................................................... 70
Model Description ................................................................................................................................ 70
Primary Assumptions............................................................................................................................ 70
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Sensitivity Assumptions ........................................................................................................................ 72
Selected Model Specifications.............................................................................................................. 72
Appendix D: Financial Analyses of Bel Vino and Starshine ...................................................................... 76
Appendix E: Valuation Tools Embedded in the Simulation ..................................................................... 81
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WACC-Based Discounted Cash Flow (DCF) ........................................................................................... 81
Terminal Values .................................................................................................................................... 82
Another DCF Methodology: APV .......................................................................................................... 83
Valuation Using Trading Multiples ....................................................................................................... 84
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Multiples Based on Comparable Transactions ..................................................................................... 84
Other Valuation Methods Available to Students ................................................................................. 84
Appendix F: Sample Simulation Results and Sensitivites ........................................................................ 87
Confidential Instructions to Bel Vino’s Management .......................................................................... 87
Confidential Instructions to Starshine’s Management......................................................................... 88
Confidential Instructions to International Beverage’s Management................................................... 88
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Confidential Instructions to Bel Vino’s Management (Dollar Volume Changes) ................................. 89
Confidential Instructions to Starshine’s Management (Dollar Volume Changes)................................ 90
Confidential Instructions to International Beverage’s Management (Dollar Volume Changes).......... 90



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