1. Megan’s Project Farm Business Planning – Case Study Solutions

2. A Project Funded by: USDA BFRDP Grant #10506276 Development Partners Include: Mississippi State University National Association of Agricultural Educators Oklahoma State University Agricultural Economics Department Oklahoma Cooperative Extension Service

4. 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

5. 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”

7. 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

8. 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

9. 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

10. 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

11. 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$389.84 Returns to Unpaid Labor, Management and Equity Capital$483.16

12. BE Price = $390/630 pounds = $0.62/ pound BE Output = $390/$1.10 per pound = 355 pounds Case Study: Breakeven Analysis

14. 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

15. 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

17. Projected of End-of-Year Balance Sheet Current assetsCurrent 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 $2,363 Total liabilities + Owner’s equity $2,534

18. 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

19. Special Thanks to: USDA BFRDP Grant Program Oklahoma State University ▫ Eric A. DeVuyst, Department of Agricultural Economics National Association of Agricultural Educators