{"id":77362,"date":"2018-02-20T23:50:30","date_gmt":"2018-02-20T23:50:30","guid":{"rendered":"https:\/\/writemyessayfree.com\/contented-milk-cows-inc-cmc-is-a-national-distributor-of-dairy-farm-equipment"},"modified":"2017-08-18T07:13:53","modified_gmt":"2017-08-18T07:13:53","slug":"contented-milk-cows-inc-cmc-is-a-national-distributor-of-dairy-farm-equipment","status":"publish","type":"post","link":"https:\/\/www.benedictsol.com\/blogs\/contented-milk-cows-inc-cmc-is-a-national-distributor-of-dairy-farm-equipment\/","title":{"rendered":"Contented Milk Cows, Inc. (CMC) is a national distributor of dairy farm equipment\u2026.."},"content":{"rendered":"<p>CONTENTED MILK COWS, INC. (FICTIONAL)<br \/> Contented Milk Cows, Inc. (CMC) is a national distributor of dairy farm equipment with<br \/> the past years sales revenue approaching $30 million. Their present product lines include about<br \/> 75 products including milk cans, milking machines, milking stall equipment, cleaning supplies,<br \/> etc. In addition to the small corporate offices, CMC has regional sales and service offices that<br \/> cover most milk producing areas in the U.S.<br \/> Dairy farming, like most industries has evolved over the years. Originally, most farmers<br \/> had 1-10 milk cows that provided their family farm with milk and cream, and the remainder was<br \/> sold to a local dairy to provide money for groceries and other family expenses. Cows were<br \/> herded into small milk barns twice a day where stanchions closed around the cows head to hold<br \/> them steady while the farmer sat and milked each cow.<br \/> Farms gradually became more specialized with herds of 50-100 milk cows, and<br \/> eventually up to several hundred in some cases. With this, milking machines became standard<br \/> that were attached to each cow manually after the cows were herded into stanchions.<br \/> Improvements were made like using rotating stanchions to lessen the required preparation and<br \/> removal time, but it still required extensive manual attention.<br \/> Automation has now become available with robotic machines replacing the manual part<br \/> of herding cows into the barn and milking stalls, fitting the milking machine to the cow, feeding,<br \/> herding cows out of their stall, etc. With this automation, dairy farmers look at computer<br \/> monitors as often as their cows. The references below provide information on robotic milking<br \/> systems. This thirteen minute marketing video offers a good overview of the entire system:<br \/> <iframe loading=\"lazy\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/GkMgwlR4vRc?feature=oembed\" frameborder=\"0\" allowfullscreen><\/iframe><br \/> Andrew, the sales manager of CMC, recently visited the World Dairy Expo in Madison,<br \/> Wisconsin and met a producer of a robotic milking system from a foreign country that is looking<br \/> for a distributor to sell their product line in the United States. When he returned home, Andrew<br \/> broached CMCs top management with this opportunity and they asked him to prepare a<br \/> financial proposal to assist them in making a decision whether to take on this product line.<br \/> Strategically, this would be a major change in their business. It is emphasized that this is an<br \/> internal proposal for CMC to consider whether to adopt this as a major addition to their product<br \/> lines; not for a sales brochure to assist dairy farmers in making a decision on buying one.<br \/> CMCs existing product lines are milking hardware with products requiring minimal<br \/> installation and maintenance. This new product line will require knowledge and skills involving<br \/> electronics and computers; a substantial change from the existing product lines. The proposed<br \/> product will require additional storage and showroom space and additional service people.<br \/> Extensive training by staff at all levels of the organization from the CEO though sales and<br \/> installation\/service employees will be needed.<br \/> It is expected that the existing sales staff is sufficient to handle the sales aspect of this<br \/> new product since there will be diminished sales for the existing product lines. The<br \/> cannibalization effect on the existing products line is to be ignored in this proposal.<br \/> CENTRAL WAREHOUSE<br \/> A new corporate warehouse will be needed to receive shipments form the foreign<br \/> manufacturer and service the regional offices. The central warehouse will store all the modular<br \/> components that compose a robotic milking system. Designs for systems will be received from<br \/> sales people and a shipment with all the required hardware will be assembled and shipped<br \/> directly to customers where CMC staff will assemble it.<\/p>\n<p>The central warehouse is estimated to cost $350,000 to construct and furnish. The<br \/> warehouse will be built on CMC owned land that has been appraised at $125,000 (opportunity<br \/> cost). The warehouse should be depreciated using 20-year MACRS and is expected to have a<br \/> salvage value of $550,000 at the end of 10 years. Since land is not depreciable, its book value<br \/> at the end of year 10 is still the original year 0 appraisal, and the estimated land value at the end<br \/> of year 10 is $150,000. (The MARCS 20-year depreciation percentages can be found at the end<br \/> of the data block.)<br \/> Annual maintenance and operating cost of the warehouse, including heating and air<br \/> conditioning, are estimated at $30,000 in year 0 and a constant $96,000 annually for years 1-10.<br \/> The central warehouse initially (year 0) will be stocked with $200,000 of inventory. In<br \/> year 1 and following years, inventory in all locations (central and regional) is expected to be<br \/> 25% of sales. Regional locations will be stocked with inventory starting in year 1.<br \/> Three new hires will be needed in the central office for product design, repair<br \/> consultation, and internal training. The plan is to add one person in year 1 at an annual cost of<br \/> $125,000 annually for wages and benefits. In year 3, a second employee will be added at<br \/> $100,000 annually. In year 5, the third employee will be added at $75,000 annually. Wages<br \/> payable is not to be included in working capital.<br \/> REGIONAL OFFICES<br \/> The 20 regional offices are leased and additional space for a demonstration capability,<br \/> repair part storage, and a repair area is needed. In some cases the present regional offices can<br \/> be expanded and in others, new office space will need to be rented with associated moving<br \/> expenses. This upfront renovation expense is forecast to average $25,000 per regional office<br \/> and this will not be depreciated and will have no value at the end of year 10. Therefore, it is a<br \/> year 0 expense on the income statement and not an investment.<br \/> The added regional annual office expense for each regional location for maintenance,<br \/> heating, and cooling is estimated at a constant $12,000 annually starting in year 1.<br \/> Each regional office will need to hire a service technician that is estimated at $84,000<br \/> annually each (for all 10 years) starting in year 1. This is an annual expense since it is not<br \/> dependent on sales volume.<br \/> TRAINING UPFRONT<br \/> Upfront design, sales and repair training will be extensive. Training programs will have<br \/> to be designed, training facilities rented, and training sessions held. The total of these is<br \/> estimated at $350,000 in year 0.<br \/> YEAR 0 EXPENSES<br \/> Note that there are year 0 (up front) expenses for inventory, training, central warehouse<br \/> expense, and regional office renovations that are not depreciable, nor do these expenses have<br \/> a salvage value. Simply list them in the income and cash flow statement where applicable as<br \/> would be done if they were in years 1-10. These will be in addition to the year 0 central<br \/> warehouse investments.<br \/> REVENUE AND COSTS<br \/> The annual sales quantities of the robotic milking systems is expected to be 10 systems<br \/> in year 1, 20 in year 2, 305 in year 3, and 40 in years 4 through 10. Each system will be sold at<br \/> an average price of $290,000. This includes a 10 year warranty for parts and labor. Cost of the<br \/> product purchased from the foreign manufacturer that includes shipping will be 60% of the<\/p>\n<p>revenue. Additional costs to assemble, ship and install each order at customer farms is<br \/> estimated at 7.5% of revenue.<br \/> WORKING CAPITAL<br \/> The foreign manufacturer offers payment terms of Net 60 meaning that CMC has 60<br \/> days to pay and therefore accounts payable will be two months of purchase cost (2\/12% percent<br \/> of purchases). The accounts payable will start in year 0 as inventory is purchased in year 0.<br \/> CMC customers will be granted payment terms of 2\/10 net 30 meaning they have 30<br \/> days to pay with a 2% discount if paid in 10 days. For this proposal, accounts receivable can be<br \/> considered as one month of sales (1\/12% of sales revenue) starting in year 1.<br \/> Inventory is discussed above in the Central Warehouse section.<br \/> Assume all working capital to be zero at the end of year 10 since it could feasibly be<br \/> liquidated if operations were ceased then.<br \/> ANDREWS CHARGE<br \/> Andrew has been charged to do the following:<br \/> 1.<\/p>\n<p>Provide a ten year present worth financial analysis to determine if this proposal is<br \/> financially advisable. He is to use a minimally acceptable rate of return of 10%,<br \/> income tax rate of 20%, and a capital gains tax rate of 15%.<\/p>\n<p>2. Summarize the financial resources that will be needed to fund this (how they will be<br \/> obtained is not to be addressed)..<br \/> 3. Cite potential risks and what potential financial effects could these have?<br \/> 4. Summarize any non-financial considerations that need to be considered when<br \/> making an accept-reject decision.<br \/> REFERENCES<br \/> Grobart, S. &amp;quot;The $210,000 Cow-Milking Robot&amp;quot;, Bloombery Business Week, October 12,<br \/> 2012. http:\/\/www.businessweek.com\/articles\/2012-10-05\/the-210-000-cow-milking-robot<br \/> McKinley, J. &amp;quot;With Farm Robotics, the Cows Decide When It\u2019s Milking Time&amp;quot;, New York<br \/> Times, April 22, 2014 http:\/\/www.nytimes.com\/2014\/04\/23\/nyregion\/with-farm-robotics-thecows-decide-when-its-milking-time.html<br \/> Sjostrom, L., Producers share insight on milking cows with robots&amp;quot;, Hoard\u2019s Dairyman,<br \/> September 2, 2014. http:\/\/www.hoards.com\/blog_milking-cows-with-robots<br \/> Szondy, D., &amp;quot;Lely Astronaut A4 milking robot lets cows milk themselves&amp;quot;, gizmag,<br \/> Deptember 2, 2013 http:\/\/www.gizmag.com\/lely-astronaut-a4\/28901\/<br \/> Weisman, S. &amp;quot;Roboting Milking&amp;quot;, American Dairymen,<br \/> September.http:\/\/www.americandairymen.com\/articles\/robotic-milking<i><a href=\"http:\/\/essaysharkbestwriters.com\/\" target=\"_blank\">Click here to have a similar paper done for you by one of our writers within the set deadline at a discounted<\/a>\u2026<\/i><\/p>\n","protected":false},"excerpt":{"rendered":"<p>CONTENTED MILK COWS, INC. (FICTIONAL) Contented Milk Cows, Inc. (CMC) is a national distributor of dairy farm equipment with the past years sales revenue approaching $30 million. Their present product lines include about 75 products including milk cans, milking machines, <a href=\"https:\/\/www.benedictsol.com\/blogs\/contented-milk-cows-inc-cmc-is-a-national-distributor-of-dairy-farm-equipment\/\" class=\"read-more\">Read More &#8230;<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-77362","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/77362","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=77362"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/77362\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=77362"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=77362"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=77362"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}