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Megan’s Project
Farm Business Planning – Case Study Solutions
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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
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Use the following slides to present solutions for the case study activities
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•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
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•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”
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CASE Study – Enterprise Budget Key
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•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
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•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
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•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
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•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
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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
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•BE Price = $390/630 pounds= $0.62/ pound
•BE Output = $390/$1.10 per pound = 355 pounds
Case Study: Breakeven Analysis
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Case Study – Cash Flow Budget Key
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•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
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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
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Case Study – Balance Sheet Key
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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
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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
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Special Thanks to:
•USDA BFRDP Grant Program
•Oklahoma State University▫Eric A. DeVuyst, Department of Agricultural
Economics
•National Association of Agricultural Educators