Assignment:
You are to calculate economic damages from an (alleged) breach of contract of an exclusive apple production agreement, and present your findings in a written document.
On January 1, 2011 a small group of orchardists were provided by East-Northeastern Utah University (ENEUU) an exclusive license to grow and sell the Econolicious apple, in perpetuity. This is a delicious premium apple - once you've tasted the fruit of economics, you can't go back.
On January 1, 2015 a second, less exclusive agreement was provided to another set of growers for the ITA Meriffic apple... the exact same apple cultivar, but with a different name. The original growers assert that this is breach of contract, and have filed suit to recover damages. The alleged damages have two components: (1) foregone earnings from Econolicious that have already been planted, due to a decreased price stemming from increased competition; and, (2) foregone earnings from Econoliciousthat would have been planted in the absence of the breach of contract.
This is a real court case, and some of the data are privileged. The data that aren't restricted by a NDA I will provide to you. Some of the data you may have to look up for yourself. For the rest, I will provide fake data. Plenty of that going around these days. Calculation of damages is actually quite simple, but needs to be done to a very high standard. No mistakes.
There are basically three steps to this project:
1. Describe what you are doing. Describe the scenario, above, but also describe your approach to calculating the economic damages. The Econolicious apple is a so-called "club apple" and you should describe what that means.
2. Calculate the costs of planting and growing Econolicious vs. the existing cultivar. (You get to name that one.) Here are some of the potential costs:
- Planting/grafting costs
- Removal costs for the old trees Potentially different production costs (e.g., training, pruning, spraying) for the new trees vs. the old trees; this may vary by age of the new trees
- Potentially different marketing and packing costs
- Royalties paid to ENEUU
- Opportunity cost from old cultivar - lost revenue from the old variety that aren't being sold any more, as the trees were replaced
3. Foregone revenue from both existing trees and trees that would have been planted. This part requires price forecasts, as well as harvest forecasts (which are basically planting forecasts). This is the confidential info; I'll give you the base price and production forecast values, though you may want to do some sensitivity analysis. Once you have parts 2 and 3 you calculate the present value of the damages.
Other things:
1. You need a discount rate to calculate the PV, or a range of discount rates.
2. You need an inflation rate for both the apple prices and the expenses.
3. The royalty to ENEUU depends on the volume of apples produced - it goes up as the Econolicious becomes more successful.
Note: this whole project is a very limited version of a financial pro forma, and as such is the kind of thing you might be expected to do in your jobs, or as investors. Time permitting, you'll be doing a more substantial pro forma for a renewable power project in a later project.
Attachment:- Present value of damages.rar