2. Updated ear tags each cow would be outfitted with a new Radio Frequency Identification (RFID) tag to replace the manual identification tag currently in use. The RFID tag would allow farm managers to track and monitor the cows more easily. For example, how much milk did she give? How long did it take her to milk? That information would automatically be added to each cows individual record in the computer. That record would collect any and all information about her: her calving information, her vaccines, any health issues and how they were handled.

All of this information can be viewed in word format and graph format so any abnormalities can easily be seen and can be promptly addressed in order to keep the cows healthier. CVF is especially interested in this project because the well-being of their cows is truly important to them and this system would enable them to individualize their care.

CVF would have to invest in an RFID Software Package in order to track the cows. RFID tags are estimated to cost $217 per cow. The tags are very durable and they are transferrable from cow to cow. CVF would have to invest in a new computer system. Hardware and software cost is estimated at $300,000, with required maintenance costing $5,000 a year for the first 5 years, and $10,000 a year thereafter. There is no additional working capital requirements.

While RFID would not have a positive increase in sales, CVF management believes that it can contribute to cost savings. It could eliminate 5 cow hand positions, thus saving $20,000 a year per position eliminated. It also believes that being able to keep the cows healthier will save them money in milk that they are currently throwing away when cows are sick and on antibiotics. CVF should be able to save $75,000 the first year as the system ramps up, with an increase in milk savings of 5% a year. Since the required maintenance on the system takes care of upgrades, CVF believes it can use the RFID system for 10 years before having to upgrade it. However, it will amortize the RFID system over a period of 5 years, using a 5 year MACRS depreciation schedule. There is no resale value for used RFID systems.

What is NPV and IRR?

Rate of Return is 12%