Chapter 13 Show calculations for Capitalization Rate, Net Income, and Economic Value 1. Cattle Ranch business plan: Purchase 55 acres for $220k Purchase 20 beef cows for $46K Purchase fence improvements for $4K Purchase pick-up truck for $10K Use $80,000 of personal funds, borrow remainder from Lost Valley Bank at 8%. Plan to sell 16 calves for $32K each year. Will have $8K of expenses for supplements, fuel, and machinery hire. I have a minimal rate of return of 12%. Lost Valley can only loan up to 75% of the economic value. Should they make the loan? 2. Deck Builders expansion plan: Construct pole barn to store equipment and materials for $12K. Purchase trailer for $4K. Purchase tractor, blade, and auger for $16K. New limited partner will put in $10K towards expansion. I apply to borrow the remainder from Second Federal Bank at 6% interest. I have a minimal rate of return of 10%. Market analysis indicates I can complete 10 more deck projects each year with an average profit of $600 each. I can also save an average of $100 per project on materials by buying in advance and storing them in the new barn. This will apply to a total of 50 projects per year. Second Federal will loan up to 70% of the economic value for small loans like this. Should they make the loan