1A. Compute the number of calendar days needed to complete a one-acre job using the current truck/trailer combination and the larger truck/trailer combination. Use this result to calculate the maximum number of jobs McCoy could accept per year using each truck/trailer combination B)Using the results from part A, compute the incremental annual revenues (cash inflows) if McCoy invests in the larger truck and trailer. Use the model in case Exhibit 1 to compute incremental annual expenses (cash outflows) if McCoy invests in the larger truck and trailer. Determine incremental annual cash flows for the larger truck and trailer C)Using the results from part B, prepare a spreadsheet modeling the initial investment and the incremental annual cash inflows and outflows for each of the next five years D) Use the incremental annual cash flows computed in part C, together with other information in the case, to evaluate the investment in the larger truck and trailer E) What would you recommend to McCoy regarding the goat rental operation? Background:
Exhibit 2 FIXED AND VARIABLE COSTS FOR RESORT JOB (in U.S. dollars) $0.63 Description Truck and trailer operation and maintenance costs per mile (transportation costs) Round trip to resort job site (miles per day) Shepherd and dog costs per day Setup costs for resort job Fencing costs per linear foot Linear feet of fence needed for resort job 80 $190.00 $100.00 $0.75 962 Exhibit 3 COSTS FOR LARGER TRUCK AND TRAILER (in U.S. dollars) Description Heavy duty pickup truck 20' used livestock trailer Taxes, title, etc. Total investment Cost $15,000 7,250 2.225 $24,475 Exhibit 4 ESTIMATED FIXED AND VARIABLE COSTS FOR GOAT RENTAL OPERATION WITH A LARGER TRUCK AND TRAILER (in U.S. dollars) Larger truck and trailer $1.25 Description Estimated truck and trailer operation and maintenance costs per mile (transportation costs) Average round trip to job site (miles per day) Shepherd and dog costs per day Setup costs per job Fencing costs per linear foot Average linear feet of fence needed per job 80 $190.00 $100.00 $0.75 962 Exhibit 1 ACTUAL REVENUES AND COSTS FOR THE RESORT LAND-CLEARING JOB (in U.S. dollars) Per day Project $375.00 $2,625.00 Calendar days needed to complete the project Revenues Revenue per calendar day Total revenues Variable costs Transportation costs Round trip distance (miles) Rate per mile Transportation costs per calendar day Total transportation costs 80 $0.63 $50.40 (352.80) $190.00 Shepherd and dog Rate per calendar day Total shepherd and dog costs Total variable costs per calendar day Contribution margin $240.40 $134.60 (1.330.00) (1,682.80) $942.20 (100.00) Fixed costs Setup Fencing Linear feet Rate per linear foot Total fencing costs Total fixed costs Profit 962 $0.75 (721.50) (821.50) $120.70 The area cleared was one acre, or 43,560 square feet. At a daily forage rate of 250 square feet per goat, the job required 174.24 goat days. The trailer has a capacity of 25 goats, so it would take 6.97 days for the goats to finish clearing the land. By agreement, McCoy billed for a full trailer (25 goats) for a full day each day the goats were on site. Therefore, McCoy billed the owner for seven calendar days (175 goat days). Exhibit 2 FIXED AND VARIABLE COSTS FOR RESORT JOB (in U.S. dollars) $0.63 Description Truck and trailer operation and maintenance costs per mile (transportation costs) Round trip to resort job site (miles per day) Shepherd and dog costs per day Setup costs for resort job Fencing costs per linear foot Linear feet of fence needed for resort job 80 $190.00 $100.00 $0.75 962 Exhibit 3 COSTS FOR LARGER TRUCK AND TRAILER (in U.S. dollars) Description Heavy duty pickup truck 20' used livestock trailer Taxes, title, etc. Total investment Cost $15,000 7,250 2.225 $24,475 Exhibit 4 ESTIMATED FIXED AND VARIABLE COSTS FOR GOAT RENTAL OPERATION WITH A LARGER TRUCK AND TRAILER (in U.S. dollars) Larger truck and trailer $1.25 Description Estimated truck and trailer operation and maintenance costs per mile (transportation costs) Average round trip to job site (miles per day) Shepherd and dog costs per day Setup costs per job Fencing costs per linear foot Average linear feet of fence needed per job 80 $190.00 $100.00 $0.75 962 Exhibit 1 ACTUAL REVENUES AND COSTS FOR THE RESORT LAND-CLEARING JOB (in U.S. dollars) Per day Project $375.00 $2,625.00 Calendar days needed to complete the project Revenues Revenue per calendar day Total revenues Variable costs Transportation costs Round trip distance (miles) Rate per mile Transportation costs per calendar day Total transportation costs 80 $0.63 $50.40 (352.80) $190.00 Shepherd and dog Rate per calendar day Total shepherd and dog costs Total variable costs per calendar day Contribution margin $240.40 $134.60 (1.330.00) (1,682.80) $942.20 (100.00) Fixed costs Setup Fencing Linear feet Rate per linear foot Total fencing costs Total fixed costs Profit 962 $0.75 (721.50) (821.50) $120.70 The area cleared was one acre, or 43,560 square feet. At a daily forage rate of 250 square feet per goat, the job required 174.24 goat days. The trailer has a capacity of 25 goats, so it would take 6.97 days for the goats to finish clearing the land. By agreement, McCoy billed for a full trailer (25 goats) for a full day each day the goats were on site. Therefore, McCoy billed the owner for seven calendar days (175 goat days)
