Goats: The Green Alternative B Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction

Jaden Mac Coy is running a goat farm in USA and is providing a rental facility of goats to clear the lands. With the continuous increase in the agriculture business in USA Mac Coy is considering to expand its business by increase in the number of goats. The location of the Mac Coy farm is nearby the smoky mountains and goats are the effective source of cleaning the land because the fastest growing of Kudzu a noxious weed is affecting the humans if they came in contact with the weed but it doesn’t harm the goats therefore it might be possible that the demands of goat rentals will also increase in future, it is also the reason that Mac Coy is considering to expand its business.

CVP analysis of Both Existing and New Option

Cost volume profit analysis is used to calculate the effect of the change in cost and volume on the operating profit or net income of the company. By performing the calculations on the basis of the CVP analysis it is expected that on existing facility the Mac Coy can earn 15 dollar per goat per day by renting its goats. There are many costs involved in providing the renting facility like is expected that the fencing cost per linear foot is 0.75 dollar and that the average liner feet fenced is needed during a complete job will be 962 feet. It is also expected that the vinyl fencing are not reusable so will be disposed of at the end of each job.

The other variable cost involved in providing the facility of rental goats is transportation cost. It is expected that the transportation cost will be 0.63 per mile and the Mac Coy farm is 40 miles away from the job so it will take about 80 miles in a day from the Farm to facility and back to the farm. The setup cost per job is expected to be 100 dollar. It is expected that the every job takes 7 days to complete the task it is also assumed that the Mac Coy will provide the goats for seven days in a week and 52 weeks in a year.

It is expected that Mac Coy will hire a shepherd along with a dog to protect the goats and for transportation purpose of the goats from Mac Coy’s place to the farm. It is expected that the shepherd will charge 190 dollars per day. By incorporating the values of the rental fee per goat for a day, total number of goats, variable cost and fixed cost into the formula of Cost volume profit analysis profit under existing facility will yield a profit 136 dollar per day.

But if Mac Coy expand its number of goats from 25 to 32 then it is expected that the shepherd will work under the same fixed wage rate of 190 dollars but increase in goats will increase the capacity and reduced the number of days to 5 from 7 and it is expected that shepherd will complete only one task in a week so he will provide its services for 5 days in a week under expansion policy.

Moreover it is expected that under expansion policy shepherd will work 50 weeks in a year instead of 52 weeks of existing size. Increase in number of goats required bigger truck and trailer for the transportation purpose.Therefore transportation cost will also increase from 0.63 dollar per mile to 1.2 dollar per mile. The setup cost and fencing cost will remain same under new facility. By incorporating these figures into the CVP formula it is expected that the expanded policy will generate profit of 206 dollar. The expanded facility is generating more profit than existing facility because the it is expected that shepherd cost will incur only when shepherd will provide its services. reduced in number of working days also reduces the shepherd cost which in turn yield the more positive figure of profit but under CVP analysis it is only considering the variable and fixed cost and ignoring the cash out flows which are required to expand the facility.

Goats The Green Alternative B Case Solution

Discounted Cash Flow

Discounted cash flows shows the future value of the cash flows which are discounted the free cash flows at a suitable discount rate in order to give the more appropriate figure for the valuation of the required field. For this purpose free cash flow is calculated by taking the earnings before interest and tax figure. Earnings before interest and tax are calculated by identifying the revenue and then subtracting the operating expenses from the revenue. In order to calculate the free cash flows depreciation is added back to the earnings..................

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