Essay About Crop Of Riesling Grapes And Harvest Immediatelybegin

Freemark Abbey Winery Case Study
Freemark Abbey Winery Case StudyQuantitative Business AnalysisDallas Baptist UniversityCase Analysis – Case 21 (Bodily, Carraway, Frey Jr., and Pfeifer, 1998)William Jaeger, partner and owner of Freemark Abbey Winery, has a crop of Riesling grapes that are close to ripening with a possible rainstorm approaching.  Freemark produces 1,000 cases per year of Riesling wine, which equates to 12,000 bottles.  Mr. Jaeger has to decide on whether to harvest the grapes right now or let the grapes get caught in the rainstorm.  Each decision comes with a certain level of risk.  If he harvests the grapes now, he will avoid the rainstorm altogether, and have a respectable type of grape that would get him a good return on his decision.  However, if he allows the grapes to remain in the storm, he has the opportunity to more than triple his return if the rainstorm produces a certain type of mold that allows the grapes to retain more sugar, thereby producing a much higher quality wine.  On the other hand, if the mold is not present in the storm, then he runs the risk of oversaturating the grapes which would result in a thin, lower quality wine.        In addition, if he does not harvest the grapes and the storm does not come, Mr. Jaeger has 3 more possibilities open to him, all based on luck.  There is the chance that the grapes will retain 25% of their sugar content and produce a high quality wine.  There is also a chance of those grapes retaining 20% of their sugar content and produce a lighter wine than the first, but still above what he would have if he harvested the grapes early.  Third, there is a small chance that the grapes will retain less than 19% of their sugar content, which would result in a thinner wine that would produce less of a return than if he had harvested the grapes early. With so many options, how does Mr. Jaeger come to a decision?  It will be helpful to utilize the flowchart diagram attached to the end of the analysis.        Harvest ImmediatelyBegin with the option with the least amount of risk, and that is the option to harvest.  This is the least risky of the options because he knows what he can get if he harvested the grapes right now.  If he harvested the grapes immediately in their current state, he would be able to sell the wine at $2.85 per bottle.  $2.85/bottle * 12,000 bottles = $34,200The result is that Mr. Jaeger would make $34,200 profit by picking the grapes immediately.  There are no other alternatives, so the EMV of harvesting immediately is the same as the profit ($34,200).Do Not Harvest, No Storm        Now to observe the options available to Mr. Jaeger if he decides to not harvest the grapes.  There is a 50-50 chance that the storm will actually appear.  So for now, let us see what the decisions are available if the storm does not actually happen.  With the storm not coming, this still allows Mr. Jaeger to leave the grapes on the vine to mature longer, thereby giving them a better quality to make better wine.  The percentage chance that the grapes retain 25% of their sugar content is 40%, and the same percentage holds for the grapes retaining 20%.  The chance that they retain 19% or less, therefore, is 20%.  The prices at which the wine would sell at each sugar content level is as follows: