Lost Peak Winery, Inc. (B)

In the (B) case, students prepare a statement of cash flows for the first year of operations in an Excel spreadsheet using the beginning balance sheet, the actual ending balance sheet and the actual income statement. Since Pablo and Roberto were forced to obtain an emergency short-term loan they would like to know why this occurred. Students evaluate the effect of changing some balance sheet items on the cash flow statement assuming that any discrepancies in the balance sheet result in a change in short-term loans payable. That is, students must write a formula for short-term loans payable so that the balance sheet automatically balances. In effect, any excess (deficiency) cash flows result in the company repaying (borrowing) short-term loans payable. The revised spreadsheet shows that Lost Peak Winery would have only needed a short-term loan of $7 rather than $177 as need under the original scenario. The completed cash flow statement is provided in Exhibit TN-1. The revised cash flow statement is provided in Exhibit TN-2. In the C case, students prepare proforma financial statements for five years ahead and examine the effect of operational efficiencies and future growth rates on future cash flows. The completed five-year proforma for the scenarios are provided in Exhibit TN-3 (original ratios), Exhibit TN-4 (revised ratios) and Exhibit TN-5 (different growth rates).