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Abbey Winery

In: Business and Management

Submitted By yazansawaie
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Arkansas State University | Freemark Abbey Winery | Team 1 | | Assignment | 11/28/2012 |


Case Summary
Freemark Abbey Winery should make a decision whether to harvest or not, taking into consideration the possibility of rain. Rain may damage the crop but delaying the harvest would be risky too. Keeping in mind rain could be beneficial and will increase the value of the resulting wine. This decision is complicated by the fact that ripe Riesling grapes can be converted to wine in two ways, resulting in two different types of wine.
Factors that should be taken into consideration
Probability of rain, mold formation, acidity, sugar level, wine price, and reputation.
Mr. Jaeger’s possible choices: Harvest now or later.
Solution: The payoffs are calculated based on 1000 cases of wine. 1. There are two alternatives: * Waiting (W) for the storm to come. * Harvest (H) now. * If he waited, the storm may or may not hit. * If the storm hits, the mold may or may not form, which greatly affect the revenue. * If the storm hits and no mold form, the sugar level which determines the quality of the wine is uncertain. The quality of wine produced affects the company’s reputation. * If storm hits and mold do not form: Sell the grapes in bulk (B), or make the thin (light) wine and sell it (T). * The best decision: Where the expected value (EV) maximizes current returns.

* The blue values represent selling the harvest in bulk (B), while the red numbers assume the thin wine will be bottles and sold for $2.00/bottle. * Selling in bulk (B) has an (EV) of $35,640. Where if harvest (H) will give a lower (EV) of $34,200. * The (EV) of waiting for the storm (W) is $39,240. 2. If the probability of the mold is only 20% a) If the thin wine is bottled: the (W)'s EV drops from $39,240 to $34,920 which is a…...

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