spent on advertising. For instance, they estimate that, for each dollar spent in the first year second year, a demand for six bottles wi result. Similarly, for each dollar spent on advertising for promoting the Petite Sirah, a demand for five bottles wil be created; and for each dollar spent in the the Sauvignon Blanc in the first year, up to eight bottles can be sold; and for each dollar spent in the second year, up to ten bottles can be sold. be The initial funds for the advertising will come from the $$10,000$ savings. Assume that the cash earned from wine sales in the first year is available in the second year. A personal concern George has is that he maintains a proper balance of wine products SO that he will be well$-$positioned to expand his marketing capabilities when he moves to the winery and makes it his full$-$time job. Thus, in his mind it is important to ensure that the number of bottles of inl Petite Sirah sold each year falls in the range between $40\%$ and $70\%$ of the overall numnber of bottles sold.

$1.$ George needs help to decide how many grapes to buy, how much money to spend on advertising, how many bottles of wine to sell, and how much profit he can expect to earn over the two$-$year period

$2.$ After showing the business plan to the Bank of Sonoma, George learns that the loan officer is concerned about the market prices used in estimating, the profits; recently it has been forecasted that Chile and Australia wilbe flooding the market with high$-$quality, low$-$priced white wines over the next couple of years. In particular, the loan officer estimates that the price used for the Sauvignon Blanc in the second year is highly speculative and realistically might be only half the price George calculated. Thus, the bank is nervous about lending t the money because of the big effect such a decrease in price might have on estimated profits. What do you think? $3.$ Another comment the loan officer of the Bank of Sonoma has after reviewing the business plan is: "I see that you do have an allowance in your calculations for$*$ the carryover of inventory of unsold wine from the first year to the second year, but you do not have any cost associated with this. All companies must charge something for holding inventory, so you should redo your plans to allow for this." If the holding charges are $$0\mathrm{.}10$ per bottle per year, how much, if any, does George's plan change?

$4.$ The president of the local grape growers' association mentions to George that there is likely to be union$).$ This means that the costs of the grapes might gO up by anywhere from $50\%$ to $100\%.$ How a strike soon over the unionization of the grape workers $($currently they are not represented by any might this affect George's plan?

$5.$ Before taking his business plan to the bank George had it reviewed by a colleague at the accounting firm where he works. Although his friend was excited about the plan and its prospects, you are an accountant and must know that money has a time value; and although you are only he was dismayed to learn that George had not used present value in determining his profit. "George, replies, "Yes, know all about present value. For big investments over long time periods, it is doing a $2-$year planning problem, it still is important to calculate the present value profit. George important to consider. But in this case, for a small investment and only a $2-$year time period, it really doesn't matter." Who correct George Or his COlleague? Why? Use an $8\%$ discount factor in SI

$6.$