Megan’s Project Farm Business Planning – Case Study Solutions
Megan’s Project
Farm Business Planning – Case Study Solutions
A Project Funded by:USDA BFRDP
Grant #10506276Development Partners Include:
Mississippi State University
National Association of Agricultural Educators
Oklahoma State University• Agricultural Economics Department• Oklahoma Cooperative Extension
Service
Use the following slides to present solutions for the case study activities
•All lessons are based on a common case study
•High school freshman with a show heifer•Wants to expand her “herd”
▫Buy a bred cow▫Needs beginning farm loan, line of credit▫Must supply business plan to bank
•Students will be taught the tools and then use them to analyze the case study
Case Study
•Owns▫Show heifer, current value $1020▫Blower, current value $300▫$500 cash
•Purchase a bred cow for $750 in January▫Calve in February▫Wean in October, Sell in December after
preconditioning
Case Study “Facts”
CASE Study – Enterprise Budget Key
•To get beginning farm loan needs an enterprise budget
•Revenue▫Sell calf in December for $693▫Increase in value of heifer = $180 (given)▫TOTAL REVENUE (cash + non-cash) =
$873
Case Study: Enterprise Budget
•Expenses▫Heifer feed $172.80▫Cow feed $88.20▫Calf feed $21.60▫Parasite control $10▫Vaccinations $16▫Ear tag $1▫Depreciation
Blower Purchase cow
Case Study: Enterprise Budget
•Depreciation—blower▫Purchase price = $300▫Salvage value =$200▫Useful life = 5 years▫Annual depreciation = ($300-$200)/5 = $20/year
•Cow depreciation▫Purchase price = $750▫Salvage value = $470▫Useful life = 7 years▫Annual depreciation = ($750-$470)/7 = $40/year
Case Study: Enterprise Budget
•Interest on operating▫100% financed▫Cash operating expenses = $309.60▫5% Interest rate▫12 months financing
•Calculation▫Operating interest = 309.60/2 × 0.05/12 ×
12 = $7.74•Interest on long-term debt
▫$250 × 0.05 = $12.50
Case Study: Enterprise Budget
Revenue
Calf sales $693.00
Increase in value of raised
breeding livestock $180.00
Total revenue
$873.00
Expenses
Feed purchases $282.60
Grazing expenses
Veterinary expenses $ 26.00
Other cash expenses (ear tag) $ 1.00
Depreciation $ 60.00
Operating interest $ 7.74
Interest on long-term debt $ 12.50
Total Expenses $389.84Returns to Unpaid Labor, Management and Equity Capital $483.16
•BE Price = $390/630 pounds= $0.62/ pound
•BE Output = $390/$1.10 per pound = 355 pounds
Case Study: Breakeven Analysis
Case Study – Cash Flow Budget Key
•Any additional sources of cash?▫Planned loan proceeds
Cow note Operating note
•Any additional uses of cash?▫Principal payments
Cow note Operating note
Case Study: Cash Flow Budget
Sources of cash
Beginning cash balance $ 500.00
Livestock sales $ 693.00
Proceeds-cow note $ 250.00
Proceeds-operating note $ 309.60
Total sources of cash $1752.60
Uses of cash
Cash expenses $ 309.60
Breeding stock purchases $ 750.00
Principal payments $ 79.00
Interest payment long-term $ 12.50
Operating note repayment $ 309.60
Interest on operating note $ 7.74
Total uses of cash
$1468.44
Net cash surplus of deficit
$ 284.16
Case Study – Balance Sheet Key
Projected of End-of-Year Balance Sheet
Current assets Current liabilities
Cash $284 Operating note $0
Cow note payment $83
Total current assets $284 Interest on cow note $0
Non-current assets Total current liabilities $83
Blower $250 Non-current liabilities
Show heifer $1,200 Cow note $88
Cow $800 Total non-current liabilities $88
Total non-current assets $2,250 Total liabilities $171
Total assets $2,534 Owner’s equity $2,363Total liabilities + Owner’s equity $2,534
Case Study: Solvency and Liquidity
•End-of-year solvency measures▫D/A= $171/$2,534 = 0.07▫E/A = $2,363/$2,534 = 0.93▫D/E = $171/$2,363= 0.07
•End-of-year liquidity measures▫Working capital = $284 - $83= $201▫Current ratio = $284/$83= 3.42
Special Thanks to:
•USDA BFRDP Grant Program
•Oklahoma State University▫Eric A. DeVuyst, Department of Agricultural
Economics
•National Association of Agricultural Educators