5. Cow Stable Improvements - The Livestock Feeding Manager is proposing to purchase Feed Pushing Robots in the cow stables. CVF accommodates 1,000 cows per stable. Based on the current herd size, there is a total of 4 stables to tend to. The feeding process is very labor intensive. Feed is pumped directly from the silos to the stables, but stable hands have to ensure that the feed is spread evenly among the cows. They also have to keep pushing the feed toward the cows to ensure that the cows have a steady supply of food. It is very important to manage a cows intake of food as you want to regulate the production of milk and the milking schedule. Feed Pushing Robots can be programmed to distribute and push up feed any number of times, day and night, thus ensuring constant availability of feed. Research has shown that a constant supply of food is proven to increase milk production by 1% per cow, which is substantial. While CVF would experience labor savings of $65/cow/year, this continuous feeding is estimated to cost an additional $45/cow/year in feed cost. CVF would have to buy 8 robots, 2 for each stable. CVF was quoted $26,000 for one robot. Because the robots are active day and night, they only have a 3-year useful life, at which point they need to be replaced. They will be depreciated using the 3-year MACRS depreciation method. CVF believes the robots will have a $500 market value each at the time they need to be replaced. Additional working capital in the amount of $50,000 will be needed upfront, and recouped at the end of the 3 years.

What is NPV and IRR?

Required Rate of Return is 12%