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# Solved Ivey School of Business Case Solution: Goats: The Green Alternative (B) By David M. Currie & Kyle S. Meyer (Download Now)

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## Description

Solution Pages: 5

Word (.docx) & Excel (.xlsx)

### Questions Covered in the Solution

Part 1

1. Compute the number of calendar days needed to complete a one-acre job using the current truck/trailer combination and the larger truck/trailer combination. Use this to calculate the maximum number of jobs McCoy could accept per year using each truck/trailer combination.

2. Using the question 1 results & exhibit #1, compute the incremental annual revenues (cash inflows) and expenses (cash outflows) given investment in a larger truck (i.e. what is the difference in revenue and expense between the old truck and the new truck).

3. Using the question 1 results & exhibit #1, compute the incremental annual revenues (cash inflows) and expenses (cash outflows) given investment in a larger truck (i.e. what is the difference in revenue and expense between the old truck and the new truck).

4. What would you recommend to McCoy regarding the goat rental operation?

### Sample of Solution

1. Compute the number of calendar days needed to complete a one-acre job using the current truck/trailer combination and the larger truck/trailer combination. Use this to calculate the maximum number of jobs McCoy could accept per year using each truck/trailer combination.

Since shepherd would be executing all the jobs, hence the total workable days available for the rental business would be working days of the shepherd, which are 250 days in a calendar year. Furthermore, the fractions of the project days have been rounded up, since the customer is billed for the full day even the goats may be used only for some portion of the day. Incorporating all the figures it has been intended that the McCoy would be able to accept 36 Jobs in the whole year with his current truck and trailer, while he would be able to accept 42 jobs with the new larger truck and the trailer, as more goats would execute the same job faster.

……

2. Using the results from #2 prepare a model of the initial investment and incremental cash flows for the next five years.  Utilize NPV, IRR & the payback period.

The current year of the operations is 2011, hence for the next five years, cash flows till the year 2016 has been considered. Moreover, it is assumed that McCoy would be working at the full new capacity and would not increase it in the next five years. Hence the cash flows would remain the same throughout the years.

Whereas NPV calculation would assist McCoy is making a decision on the realistic basis, since NPV defines the net of current investment and the present value of the future cash flows. While IRR, would determine the rate the return which would be realized in the subsequent years once the investment is made. Payback period must also be considered while forming decisions since it determines the number of periods it would take to get back the initial investment from the future cash flows.

…….

4. What would you recommend to McCoy regarding the goat rental operation?

Realizing the assumed projections, McCoy should invest in the new truck and trailer for the expansion of his goat’s rental business, as he would be able to earn greater profit margins per project by increasing the current bottleneck of the 25 goats to 32 goats. While capitalizing on the economies of scale and incurring the same fixed costs the greater contribution margin would bring higher net profits. Furthermore, the demand of the goat rental business is also appeared to be stringent due to the efficiency of goats in consuming kudzu and other noxious weeds at the marginal costs. Apart from this, IRR of this project (23%) is also greater than the cost of the capital (12%) which implies that the project is favorable since it would effectively earn profits above its stipulated costs.

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