Winery Investment

[davidanthony]

You have bought a 15 hectare vineyard at £100,000 per hectare. £30,000 per hectare to plant and £5000 per hectare per year to look after it. There will not be a crop for 3 years. Assuming 6000 bottles of wine per hectare at production cost of £2.00 per bottle and sell them for £8.00, how long after planting will there be a profit? 4 years, 8 years, 12 years, never ??

[bert_h]

After 3 years, total outlay = 2,175,000

Yearly profit thereafter = 720,000 - 230,000 = 490,000

Allowing for some interest and inflation, that looks like breakeven after 5 years and profit in the following years.

[Old_Geezer]

What's the rate of inflation ? How much taxation is there ?

[Dizmo]

If you had said "We are thinking of buying a 15 hectare vineyard at £100,000......" then bert_h's response would of been 100 times more welcoming.

Is this a general maths question or have you purchased land without doing the financials beforehand? I'm not judging you - I know I sound like I am but I'm mythed :)

[DTCwordfan]

I wouldn't invest in it if one applies a DCF of 5%, - what I could achieve from investing the front end £1.5 mln in a quasi-gilt market.

[buildersmate]

This question should be reposted in the `Do My Homework` section.

[bert_h]

When I wrote // . . . breakeven after 5 years . . . // I had forgotten to add the first three non-productive years, so it should be breakeven after 8 years. If you copied the 5 for your answer without checking it, shame on you.

[alavahalf]

What happens if you have a .. "bad year" .. that hasn't been mentioned in the equation .. all the figures will go on the fire !

[davidanthony]

Many thanks guys and gal. Interesting. I came up with 8 years, Where is the " Do Your Homework" section BM !?!?
I have certainly not invested, it was a question in a " fiendish wine quiz" and although I am financially savvy, felt I needed a second opinion.