Case Study-FIN4220 Malakoff Valley Farm, Inc. Professor Post Malakoff Valley Farm, Inc. (MVF) is a legacy dairy farm located in lowa. It started out as a small farm in the late 1800s and is now being run by the family's fourth generation. Through various consolidations of surrounding farms, MVF has become a large dairy farm with 4,000 cows, bl and white Holsteins, fawn-colored jerseys, along with mottled crossbreeds of the two. The ack Malakoff family takes a lot of pride in their farm and cares for their animals greatly. MVF is currently relying on equipment and aging technology that has been partly acquired via farm consolidations over the years. The MVF's CEO, Scott Malakoff, has decided that it was time for the farm to rely more on available technology and to update some of the equipment used on the farm. Based on his knowledge of the milk industry in lowa, the CEO has determined that he needs to grow MVF to $15 million in annual sales in order to be able to compete with the top 10 farms. He does not want to add cows to his farm at this point, and he is acutely aware that MVF cannot grow and remain profitable if he does not authorize some capital spending. Scott Malakoff is willing to consider approving around $10 million in capital spending. He has not yet decided how the capital expenditures will be funded, but he understands that a combination of external financing and additional paid-in capital may be needed. Scott Malakoff has asked his executive team to research and propose capital expenditure projects that would significantly improve their respective department as well as create the most value for the dairy farm. His executive team consists of: Ryan Malakoff, Operating Officer Justin Malakoff, Livestock Feeding Manager Chris Cornwall, Milking and Storing Manager Janet Ulrich, Pasture Manager Adbul Ben-Abbes, Herd Health and Reproduction Manager many strategic meetings, the following projects were identified as making the most sense for MVF to invest in. Your services have been retained to conduct an analysis of the proposed projects and formulate a proposal that will:(a) create the most value for MVF, (b) explain the strategy behind the proposal, (c) present Pro-Forma Income Statement and Balance Sheet reflecting the impact of the investments and (e) propose an optimal capital structure addressing how to fund the capital investments MVF has a 21% corporate tax rate and a required rate of return of 12%. Their hurdle rates are as follows: Pl - 1.15, Payback 3 years, Discounted Payback 4 years DELIVERABLES Your first task is to calculate the CFFA, CFS and CFC, the Internal Growth Rate, the Sustainable Growth Rate and the dividend payout ratio for MVF based on the latest financial statements available. Based on your calculations, address whether an internal growth or sustainable growth strategy is a viable option for MVF at this time. 1. Malakoff Income Statement in 000s of $ $ 11.201$ 11,289 7,657 219 7,619 211 3,371 Deprecia Gross Income 3,194 SG&A Other Expenses EBIT Interest Income Tax Net Income 102 144 81 Malakoff Balance Sheet in '000s of 2016 2017 $ 253 $ 224 79 Cash ST Investments Accounts Receivale 71 291 237 1,660 1,753 Buildings and Structures Machinery and iment1,.92 Net Fixed Assets 679 679 Intangible Assets Total Assets Liabilities s $,129 $ 4,796 456 528 59 15 Income Tax Payable Other Current Liabilities ST Debt 370 203 1,595 LTD Equity Common Stock Add'I Paid In Capital Retained Earnings 375 375 531 1656 1733 $5,129$4,796 Review and analyze the proposed investments, using at least 2 capital budgeting methods to corroborate your findings. NPV and IRR are the preferred methods. Show 2. your work. into your Word document Based on your analysis, prepare a capital expenditure plan of action for the N management team. Prepare Pro-Forma statements that wil Recommendation: use Excel to run your NPVs and copy/insert Excel object 3. 4. Il incorporate your recommended changes. Be sure to highlight the changes made to the financial statements and discuss the External Financing Needed and/or increase in equity needed. Recommend an optimal capital structure for Malakoff (debt versus equity financing) and explain your reasoning. Assess MVF's hurdle rates. Are they reasonable and do they serve MVF well? Perform a S. sensitivity analysis (choose 2 sets of different hurdle rates and re-run your valuations) Add ress whether your proposal would change based on this exercise and make recommendations as necessary 6. Your Case Study should begin with an Executive Summary (1 paragraph). There is no page limit, but remember that you are writing a business paper: it should be succinct and avoid waffle at all costs. Your paper should be properly organized, professionally written (proper grammar, correct spelling), with a logical flow of analysis. Be sure to cite your sources if needed. MVF RECOMMENDED CAPITAL INVESTMENT PROJECTS: 1. Automated milking system- while MVF currently uses basic milking machines, it still relies heavily on farm hand labor. The milking staff has to manage the milking process-cow rotation in the milking parlor, udder sanitation, suction cup attachment and removal. Attendants estimate the release of the cow from the milking machine based on average milk output per cow. An automated milking system uses computer-controlled equipment which identifies the cow, sanitizes the udder, gently collects the milk and releases the cow when she is done milking, using sensory nodes to gauge udder capacity and yield at each milking MVF currently produces approximately 21,796 Ibs of milk per cow per year. The current market price for 100 lbs of milk is $12.73. MVF has estimated that they could increase the production of milk by 10% if they invest in an automated milking system without increasing the size of their herd. MVF also believes that the new milking system will help them obtain a higher classification for the quality of their milk (from a 4 to a 5), which will raise the market price to $13.50 per 100 lbs of milk. MVF currently has a milking staff of 40 with a total payroll cost of $20,000 per person per year. Automating the milking process would enable them to cut their milking staff by 10 people. A milking robot cluster costs $1,500,000 (installed) and MVF would need to buy 5 units. tative maintenance and wear-and-tear parts are estimated to cost $25,000 a year per milking robot. An automated milking robot cluster has a useful life of 5 years, at which point it can be sold for $150,000. The system will be depreciated on a straight-line basis to zero. MVF would need additional working capital of $120,000 which would all be recouped in year 5 Research also shows that an automated milking system reduces the probability of cows getting mastitis, a teat infection. Cows who contract mastitis have to be put on antibiotics. They still have to be milked, but have to be separated from the herd while they are recovering and their milkhasto be thrown away. MVF estimates that the new milking system woulde iminate %of the mastitis cases, saving on medical costs and wasted milk. MVF has estimated that it would save $300,000 a year on meds and wasted milk if it invested in the Automated Milking System Photo: AgriExpo 2. Updated ear tags- each cow would be outfitted with a new Radio Frequency Identification (RFID) tag to replace the manual tag their currently 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 cow's 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 the information can be viewed in word format and graph format so any abnormalities will be easily seen and can be addressed to keep the cows healthier. MVF is especially interested irn this project because the well-being of their cows is truly very important to them and this system would enable them to individualize their care MVF 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. MVF 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, MVF 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. MVF 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, MVF believes it can use the RFID system for 10 years before having to upgrade it. ver, it will amortize the RFID system over a period of 5 years,a using 5 year MACRS. There is no resale value for used RFID systems. mortizing it using to zero HOW LIVESTOCK RFID WORKS 3. Waste digester- MVF currently sells its cow waste to a local manure processor who produces organic cow manure sold in retail stores. Cow manure sales have averaged Operating Cash Flows of $5,000 a month. The pasture manager has put forth a proposal to buy and install a state-of-the-art digester. The digester has a pit that can hold and process 2 million gallons of manure at a time, producing enough methane to generate all of the electricity needed by the farm and power 120 homes/small farms in the surrounding area. The digester would be built behind the cow stables on a piece of land that was acquired by MVF 3 years ago for $250,000. At that time, MVF spent an additional $100,000 to prep the land for future use. It is considering selling it to a group of county developers who need it to store construction equipment. The offer on the table is $350,000. MVF will hold off making this decision until all proposed investments have been analyzed. Tthe digester would cost $1,000,000 to build and would have a useful life of 8 years. At that time, MVF would have to replace the processor and all mechanical parts if it continue using the digester. The estimated market value for the used processor $75,000. Straight line depreciation would be used to zero. The digester would eliminate the need to buy electricity from the local provider and MVF would save $120,000 a year on utilities. In addition, it could power neighboring homes and generate $2,440 income per house / small farm on their grid per year. MVF would have to install a grid of pipes going to those homes. That initial installation cost would be $1000 per home/farm supplied and would be installed at the same time as the digester. and parts is Another big benefit of the digester is odor control and manure disposal. Due to the sheer volume of manure being produced on a daily basis, MVF had to invest in a system of conveyor belts that moved the manure out of the stables and dumped it in various locations around farm. The conveyor belt system would no longer be needed if the digester is built. It was purchased 3 years ago for $400,000, and is being depreciated to zero using straight-line depreciation over a period of 10 years. MVF feels confident it could sell the conveyor belt system for $250,000 today. the 4. Reproduction lab with automated calf feeders - MVF employs 2 full-time nutritionists and 2 ful-time veterinarians. The nutritionists ensure that cows get the nutrients they need every day in the stables. They also currently manually regulate calf feeding, adjusting the nutrients and dosage as the calves age. At this point, all calves are kept in a separate stable until they are old enough to be released. pasture until they are old enough to be impregnated so that they can produce milk and join the general herd. Automated calf feeders would reduce the amount of time it takes to mature and release calves. Automated feeders push food out to the calves several times a day, with a computer program adjusting for their age and size and providing exact nutrient mixes based on individual calf's needs. Computers generate up-to-the-minute reports about each calf, flagging the calves that require intervention by either the nutritionists or veterinarians. They are either sold (if they are males) or, if they are female, sent to The Herd Health and Reproduction Manager would like for MVF to consider building a reproduction lab on the piece of land that was acquired 3 years ago for $250,000(+$100,000 to prep the land for future use, which has an offer of $350,000 pending). Since it is located directly behind the cow stables, it would be an ideal location for that purpose. On average, a cow at MVF births 2 calves over a 4-year period. The national average is 2-4 calves in a 4-year period. The HH&R Manager believes that the lab would allow MVF to increase its calf production per cow from 2 to 3 calves over a 4-year period. Currently, MVF registers 1,251 calf births a year-45% of the calves born are female, 55% are male, with the automated calf feeders in place, MVF would be able to release male calves faster and would increase the number of male calves sold by 35% a year. On average, MVF gets $1,000 a calf at auction. The additional cost associated with taking more calves to maturity is $250 per calf, and includes feed, vaccinations and medications. Raising calf production would require an additional $20,000 in working capital. In addition, the reproduction lab would expand MVF's lab capacity. MVF's nutritionists take feed samples, milk samples, blood samples and manure samples daily. As the size of the herd continues to grow, the nutritionists have exceeded their lab capacity and have had to use the services of the nearest lab, which is 30 miles away. Expanded lab capacity would enable them to be self-sufficient, cut lab fees, and contribute to the overall health of the herd by providing timely nutrient adjustments. MVF currently spends $125,500 a year in lab fees. MVF would use an existing barn structure which is currently not being used, and move it to the site. The Reproduction Lab equipment would require a $800,000 investment (this includes the additional lab testing capacity required to eliminate outside testing fees). An automatic calf feeder costs $18,000 a piece and feeds 2 calves. MVF estimates that it will need 14 feeders calf management software will cost an additional $38,000. The lab equipment will be iepreciated to zero over a period of 10 years, using the straight-ine depreciation method. The rs and computer system will also be depreciated over 10 years, using the straight-line method, but MVF anticipates that it will be able to sell the used lab equipment for $100,000 and the used feeders for $2,000 a piece. 5. Cow Stable Improvements-The Livestock Feeding Manager is proposing to purchase Feed Pushing Robots in the cow stables. MVF accommodates 1,000 cows per stable. Based on the current herd size, there are 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. Stable hands then ensure that the feed is spread evenly among 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 cow's intake of food as you want to regulate the production of milk and the milking schedule. Feed Pushing Robots can be programmed to 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%. In addition, MVF would experience labor savings of $65/cow/year. This continuous feeding is estimated to cost an additional $45/cow/year in feed cost. MVF would have to buy 8 robots, 2 for each stable. MVF 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. MVF 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. 6.Thermostat-controlled curtains-Cows thrive in cold air, so MVF keeps its barns between 50- 55 degrees Fahrenheit. But when temperatures dip well below freezing, it is very difficult to keep the stables at 50-55 degrees and the inside temperature often drops way below the desired level. Cows produce as much as 20% less milk when they are cold. Thermostat. controlled curtains have been proven to keep cows comfortable throughout the winter months enabling dairy farms to control the milk output of their cows. In the winter months (Novembe through February), MVF regularly registers an average drop in monthly milk production of 66 lbs per cow. The cost of outfitting a barn with curtains and thermostats is $150,000. Their useful life is 10 years, and they are depreciated to zero using the straight-line method. After 10 years, the curtains have to be thrown away. Increased production of milk during the winter months would require MVF to commit to an additional $70,000 in working capital Case Study-FIN4220 Malakoff Valley Farm, Inc. Professor Post Malakoff Valley Farm, Inc. (MVF) is a legacy dairy farm located in lowa. It started out as a small farm in the late 1800s and is now being run by the family's fourth generation. Through various consolidations of surrounding farms, MVF has become a large dairy farm with 4,000 cows, bl and white Holsteins, fawn-colored jerseys, along with mottled crossbreeds of the two. The ack Malakoff family takes a lot of pride in their farm and cares for their animals greatly. MVF is currently relying on equipment and aging technology that has been partly acquired via farm consolidations over the years. The MVF's CEO, Scott Malakoff, has decided that it was time for the farm to rely more on available technology and to update some of the equipment used on the farm. Based on his knowledge of the milk industry in lowa, the CEO has determined that he needs to grow MVF to $15 million in annual sales in order to be able to compete with the top 10 farms. He does not want to add cows to his farm at this point, and he is acutely aware that MVF cannot grow and remain profitable if he does not authorize some capital spending. Scott Malakoff is willing to consider approving around $10 million in capital spending. He has not yet decided how the capital expenditures will be funded, but he understands that a combination of external financing and additional paid-in capital may be needed. Scott Malakoff has asked his executive team to research and propose capital expenditure projects that would significantly improve their respective department as well as create the most value for the dairy farm. His executive team consists of: Ryan Malakoff, Operating Officer Justin Malakoff, Livestock Feeding Manager Chris Cornwall, Milking and Storing Manager Janet Ulrich, Pasture Manager Adbul Ben-Abbes, Herd Health and Reproduction Manager many strategic meetings, the following projects were identified as making the most sense for MVF to invest in. Your services have been retained to conduct an analysis of the proposed projects and formulate a proposal that will:(a) create the most value for MVF, (b) explain the strategy behind the proposal, (c) present Pro-Forma Income Statement and Balance Sheet reflecting the impact of the investments and (e) propose an optimal capital structure addressing how to fund the capital investments MVF has a 21% corporate tax rate and a required rate of return of 12%. Their hurdle rates are as follows: Pl - 1.15, Payback 3 years, Discounted Payback 4 years DELIVERABLES Your first task is to calculate the CFFA, CFS and CFC, the Internal Growth Rate, the Sustainable Growth Rate and the dividend payout ratio for MVF based on the latest financial statements available. Based on your calculations, address whether an internal growth or sustainable growth strategy is a viable option for MVF at this time. 1. Malakoff Income Statement in 000s of $ $ 11.201$ 11,289 7,657 219 7,619 211 3,371 Deprecia Gross Income 3,194 SG&A Other Expenses EBIT Interest Income Tax Net Income 102 144 81 Malakoff Balance Sheet in '000s of 2016 2017 $ 253 $ 224 79 Cash ST Investments Accounts Receivale 71 291 237 1,660 1,753 Buildings and Structures Machinery and iment1,.92 Net Fixed Assets 679 679 Intangible Assets Total Assets Liabilities s $,129 $ 4,796 456 528 59 15 Income Tax Payable Other Current Liabilities ST Debt 370 203 1,595 LTD Equity Common Stock Add'I Paid In Capital Retained Earnings 375 375 531 1656 1733 $5,129$4,796 Review and analyze the proposed investments, using at least 2 capital budgeting methods to corroborate your findings. NPV and IRR are the preferred methods. Show 2. your work. into your Word document Based on your analysis, prepare a capital expenditure plan of action for the N management team. Prepare Pro-Forma statements that wil Recommendation: use Excel to run your NPVs and copy/insert Excel object 3. 4. Il incorporate your recommended changes. Be sure to highlight the changes made to the financial statements and discuss the External Financing Needed and/or increase in equity needed. Recommend an optimal capital structure for Malakoff (debt versus equity financing) and explain your reasoning. Assess MVF's hurdle rates. Are they reasonable and do they serve MVF well? Perform a S. sensitivity analysis (choose 2 sets of different hurdle rates and re-run your valuations) Add ress whether your proposal would change based on this exercise and make recommendations as necessary 6. Your Case Study should begin with an Executive Summary (1 paragraph). There is no page limit, but remember that you are writing a business paper: it should be succinct and avoid waffle at all costs. Your paper should be properly organized, professionally written (proper grammar, correct spelling), with a logical flow of analysis. Be sure to cite your sources if needed. MVF RECOMMENDED CAPITAL INVESTMENT PROJECTS: 1. Automated milking system- while MVF currently uses basic milking machines, it still relies heavily on farm hand labor. The milking staff has to manage the milking process-cow rotation in the milking parlor, udder sanitation, suction cup attachment and removal. Attendants estimate the release of the cow from the milking machine based on average milk output per cow. An automated milking system uses computer-controlled equipment which identifies the cow, sanitizes the udder, gently collects the milk and releases the cow when she is done milking, using sensory nodes to gauge udder capacity and yield at each milking MVF currently produces approximately 21,796 Ibs of milk per cow per year. The current market price for 100 lbs of milk is $12.73. MVF has estimated that they could increase the production of milk by 10% if they invest in an automated milking system without increasing the size of their herd. MVF also believes that the new milking system will help them obtain a higher classification for the quality of their milk (from a 4 to a 5), which will raise the market price to $13.50 per 100 lbs of milk. MVF currently has a milking staff of 40 with a total payroll cost of $20,000 per person per year. Automating the milking process would enable them to cut their milking staff by 10 people. A milking robot cluster costs $1,500,000 (installed) and MVF would need to buy 5 units. tative maintenance and wear-and-tear parts are estimated to cost $25,000 a year per milking robot. An automated milking robot cluster has a useful life of 5 years, at which point it can be sold for $150,000. The system will be depreciated on a straight-line basis to zero. MVF would need additional working capital of $120,000 which would all be recouped in year 5 Research also shows that an automated milking system reduces the probability of cows getting mastitis, a teat infection. Cows who contract mastitis have to be put on antibiotics. They still have to be milked, but have to be separated from the herd while they are recovering and their milkhasto be thrown away. MVF estimates that the new milking system woulde iminate %of the mastitis cases, saving on medical costs and wasted milk. MVF has estimated that it would save $300,000 a year on meds and wasted milk if it invested in the Automated Milking System Photo: AgriExpo 2. Updated ear tags- each cow would be outfitted with a new Radio Frequency Identification (RFID) tag to replace the manual tag their currently 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 cow's 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 the information can be viewed in word format and graph format so any abnormalities will be easily seen and can be addressed to keep the cows healthier. MVF is especially interested irn this project because the well-being of their cows is truly very important to them and this system would enable them to individualize their care MVF 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. MVF 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, MVF 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. MVF 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, MVF believes it can use the RFID system for 10 years before having to upgrade it. ver, it will amortize the RFID system over a period of 5 years,a using 5 year MACRS. There is no resale value for used RFID systems. mortizing it using to zero HOW LIVESTOCK RFID WORKS 3. Waste digester- MVF currently sells its cow waste to a local manure processor who produces organic cow manure sold in retail stores. Cow manure sales have averaged Operating Cash Flows of $5,000 a month. The pasture manager has put forth a proposal to buy and install a state-of-the-art digester. The digester has a pit that can hold and process 2 million gallons of manure at a time, producing enough methane to generate all of the electricity needed by the farm and power 120 homes/small farms in the surrounding area. The digester would be built behind the cow stables on a piece of land that was acquired by MVF 3 years ago for $250,000. At that time, MVF spent an additional $100,000 to prep the land for future use. It is considering selling it to a group of county developers who need it to store construction equipment. The offer on the table is $350,000. MVF will hold off making this decision until all proposed investments have been analyzed. Tthe digester would cost $1,000,000 to build and would have a useful life of 8 years. At that time, MVF would have to replace the processor and all mechanical parts if it continue using the digester. The estimated market value for the used processor $75,000. Straight line depreciation would be used to zero. The digester would eliminate the need to buy electricity from the local provider and MVF would save $120,000 a year on utilities. In addition, it could power neighboring homes and generate $2,440 income per house / small farm on their grid per year. MVF would have to install a grid of pipes going to those homes. That initial installation cost would be $1000 per home/farm supplied and would be installed at the same time as the digester. and parts is Another big benefit of the digester is odor control and manure disposal. Due to the sheer volume of manure being produced on a daily basis, MVF had to invest in a system of conveyor belts that moved the manure out of the stables and dumped it in various locations around farm. The conveyor belt system would no longer be needed if the digester is built. It was purchased 3 years ago for $400,000, and is being depreciated to zero using straight-line depreciation over a period of 10 years. MVF feels confident it could sell the conveyor belt system for $250,000 today. the 4. Reproduction lab with automated calf feeders - MVF employs 2 full-time nutritionists and 2 ful-time veterinarians. The nutritionists ensure that cows get the nutrients they need every day in the stables. They also currently manually regulate calf feeding, adjusting the nutrients and dosage as the calves age. At this point, all calves are kept in a separate stable until they are old enough to be released. pasture until they are old enough to be impregnated so that they can produce milk and join the general herd. Automated calf feeders would reduce the amount of time it takes to mature and release calves. Automated feeders push food out to the calves several times a day, with a computer program adjusting for their age and size and providing exact nutrient mixes based on individual calf's needs. Computers generate up-to-the-minute reports about each calf, flagging the calves that require intervention by either the nutritionists or veterinarians. They are either sold (if they are males) or, if they are female, sent to The Herd Health and Reproduction Manager would like for MVF to consider building a reproduction lab on the piece of land that was acquired 3 years ago for $250,000(+$100,000 to prep the land for future use, which has an offer of $350,000 pending). Since it is located directly behind the cow stables, it would be an ideal location for that purpose. On average, a cow at MVF births 2 calves over a 4-year period. The national average is 2-4 calves in a 4-year period. The HH&R Manager believes that the lab would allow MVF to increase its calf production per cow from 2 to 3 calves over a 4-year period. Currently, MVF registers 1,251 calf births a year-45% of the calves born are female, 55% are male, with the automated calf feeders in place, MVF would be able to release male calves faster and would increase the number of male calves sold by 35% a year. On average, MVF gets $1,000 a calf at auction. The additional cost associated with taking more calves to maturity is $250 per calf, and includes feed, vaccinations and medications. Raising calf production would require an additional $20,000 in working capital. In addition, the reproduction lab would expand MVF's lab capacity. MVF's nutritionists take feed samples, milk samples, blood samples and manure samples daily. As the size of the herd continues to grow, the nutritionists have exceeded their lab capacity and have had to use the services of the nearest lab, which is 30 miles away. Expanded lab capacity would enable them to be self-sufficient, cut lab fees, and contribute to the overall health of the herd by providing timely nutrient adjustments. MVF currently spends $125,500 a year in lab fees. MVF would use an existing barn structure which is currently not being used, and move it to the site. The Reproduction Lab equipment would require a $800,000 investment (this includes the additional lab testing capacity required to eliminate outside testing fees). An automatic calf feeder costs $18,000 a piece and feeds 2 calves. MVF estimates that it will need 14 feeders calf management software will cost an additional $38,000. The lab equipment will be iepreciated to zero over a period of 10 years, using the straight-ine depreciation method. The rs and computer system will also be depreciated over 10 years, using the straight-line method, but MVF anticipates that it will be able to sell the used lab equipment for $100,000 and the used feeders for $2,000 a piece. 5. Cow Stable Improvements-The Livestock Feeding Manager is proposing to purchase Feed Pushing Robots in the cow stables. MVF accommodates 1,000 cows per stable. Based on the current herd size, there are 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. Stable hands then ensure that the feed is spread evenly among 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 cow's intake of food as you want to regulate the production of milk and the milking schedule. Feed Pushing Robots can be programmed to 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%. In addition, MVF would experience labor savings of $65/cow/year. This continuous feeding is estimated to cost an additional $45/cow/year in feed cost. MVF would have to buy 8 robots, 2 for each stable. MVF 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. MVF 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. 6.Thermostat-controlled curtains-Cows thrive in cold air, so MVF keeps its barns between 50- 55 degrees Fahrenheit. But when temperatures dip well below freezing, it is very difficult to keep the stables at 50-55 degrees and the inside temperature often drops way below the desired level. Cows produce as much as 20% less milk when they are cold. Thermostat. controlled curtains have been proven to keep cows comfortable throughout the winter months enabling dairy farms to control the milk output of their cows. In the winter months (Novembe through February), MVF regularly registers an average drop in monthly milk production of 66 lbs per cow. The cost of outfitting a barn with curtains and thermostats is $150,000. Their useful life is 10 years, and they are depreciated to zero using the straight-line method. After 10 years, the curtains have to be thrown away. Increased production of milk during the winter months would require MVF to commit to an additional $70,000 in working capital