Aquarius Ales Case

Topics: Discounted cash flow, Cash flow, Weighted average cost of capital Pages: 2 (1022 words) Published: January 26, 2015
MEMORANDUM
DATE:
TO:
FROM:
SUBJECT: Aquarius – Pub Valuation
Overview
The Greens are looking to sell Aquarius Ales, their pub located in Austin Texas as they are looking to fully retire and take up golfing and quilt making. Recently they have received their first offer to buy the business which was $450,000 from Marc Johnston and John Sheridan, two University of Texas graduates who miss the college scene. The Greens are seriously considering the offer but feel that it may be a bit low as they estimated the value of Aquarius Ales to be closer to $700,000. Marc and John were having similar thoughts, their interest in purchasing the pub was sincere, but they were still unsure that $450,000 was the appropriate valuation and selling price. Advantages of Paying Managers a Percentage of Profits

There are a couple of advantages to paying managers a percentage of profits. The most obvious reason is that Aquarius will have incentivized management’s performance effectively connecting it to the performance of the bar in general. With this pay scheme management will be more invested in the success of the bar in general and with that they will likely adjust their actions towards reaching that goal. For example they will work harder to increase sales, sell items with higher profit margins, and keep customers drinking longer. At the same time they might be more attentive to catching theft and other losses such as spoilage. In contrast if they have only a regular salary, the only motivation to do these things would be internal motivation driven by their own values. Competitive Advantages

Currently Aquarius Ales has two main competitive advantages, their location and their lack of competition. Aquarius Ales is located in the main bar area, which is conveniently located close to a large university, the University of Texas, Austin. With this they have a large pool of customers mostly consisting of the 25-45 year old range. In addition to this...
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