Using the time value of money to assess the feasibility of investing into agouti (Dasyprocta leporina) units: An Application of the Net Present Value Presented by Nkosi Felix Department of Agricultural Economics and Extension University of the West Indies Authors: Felix N., M. D. Singh, G. W. Garcia and G. Seepersad

Outline Introduction Background Methodology Results and Analysis Conclusion

Introduction Agouti (Dasyprocta leporina) is farmed by over 70% of all the registered wildlife farms in Trinidad and Tobago, as this neotropical animal is highly prized for its meat. Research recommends a population of 26 males to 255 females is needed for the operation of a successful farm. An adult Agouti cost on average TT$600 (US$100) live. Therefore an initial investment of TT$168,800 (US$28,100) would be required to purchase breeding stock.

Is this a GOOD investment? Purpose of the Study Is this a GOOD investment?

Purpose of the Study An entrepreneur is defined as a person who manages risk in the aim of profit. Opportunity Cost is the value forgone when making a choice between to investments. Therefore to ensure the choice of investing into a commercial Agouti unit provides return. The risk associated with the change in the value of money over time.

Background In Trinidad and Tobago prior to the two year moratorium on hunting, farmers were allowed Agouti carcass sales for five months. This period extended from October to March of the following year. During this period Agouti meat was recorded to sell for approximately TT$80/lb.

Background This restriction on the sale of meat primarily leads to negative cash flow in the remaining seven months of the year. Cash flow would be negative, since operational cost would be incurred: Labour Feed It has been said that cash is the blood of a new venture and therefore negative cash flow the main reason for business failure.

Methodology A cashflow model was developed for a 281 Agouti unit (255 females and 26 males), which accounting for Feed, 30 grams of pumpkin/ day Labour, 1 man 6 days/ week Animal breeding, two offspring every 4 months Animal maturity of 14 months Mortality rate of 15% Volume of dressed Agouti for sale during five months of the year

Methodology Cost of Structure Based on construction of rabbit cages for the 281 animals= TT$112,400 Net Present Value: The value of money depreciates over time. A dollar today would be worth less tomorrow. Discounting allows the present value of future cash flow to be know today. Net Present Value: provides the difference of net cash flows minus the initial investment.  

Net Present Value (NPV) NPV = ∑ FV - I (1+r)^t Where, r = discount rate or cost of borrowing t = time (month or years) FV = net cash flows I = initial investment Note: discount rate of 6% was used since it the lending rate of the Agricultural Development Bank Trinidad % Tobago

Methodology Sensitivity analysis The commercial bank rate was used: 12% If negative, investigation would be conducted to assess the rate of borrowing the project could burden.

Results and Analysis Discount rate at 6% No animals would be available for sale in the first year. In the second year 434 animals would be available for sale valued at TT$155,873 (Present Value = TT$138,726). From the third year onwards 1,300 animals would be available annually valued at TT$467,618 (Present Value = TT$392,621). NPV = TT$271,643 after five years using a discount rate of 6% per annum.

Results and Analysis Discount rate at 12% NPV = -TT$101,595 after five years. In the second year 434 animals would be available for sale valued at TT$155,873 (Present Value = TT$124,261). From the third year onwards 1,300 animals would be available annually valued at TT$467,618 (Present Value = TT$332,841).

Results and Analysis Discount rate at 10% NPV = TT$18,407 after five years. In the second year 434 animals would be available for sale valued at TT$155,873 (Present Value = TT$128,820). From the third year onwards 1,300 animals would be available annually valued at TT$467,618 (Present Value = TT$351,328).

Results and Analysis Discount rate at 11% NPV = -TT$42,055 after five years. In the second year 434 animals would be available for sale valued at TT$155,873 (Present Value = TT$126,509). From the third year onwards 1,300 animals would be available annually valued at TT$467,618 (Present Value = TT$341,918).

Conclusion and Recommendation The Study found that the Agouti unit would yield a positive NPV at a lending rate of ADB but not of the Commercial Banks. If the cost of borrowing is greater than 10% investment should be forgone. At the lending rate of 6% the unit can also burden an increase in labour 70% but at a lending rate of 10% any operational increase would make the venture unprofitable. It is recommended that investors continually research methods to minimize cost especially if capital is borrowed at a variable rate.

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