team reflection

Learning Team Reflection

Augusto Alvarez, Ani Hakobyan, Stephanie Kirk, Cristina Linares, Debbie Voeks

FIN/571 Foundations of Corporate Finance

June 23, 2014

Clifford Merchant

Learning Team Reflection

Introduction

Turning tangible assets into investments is nothing new, investors did the same thing during previous market downturns, and they did not always come out ahead. A year ago, 49 years old Peggy Parks, who worked as a building code auditor got tired of watching her retirement savings investments going in the wrong direction and resulting in losing half of her 401(K) investments. To recover from that lost, Peggy Parks made an unconventional investment after learning how robust the Alpaca’s business can be. According to Peggy, “with Alpacas it is something tangible that you have on hand and always going to be there” (University of Phoenix, 2014).

Diversification

Peggy lost almost half her retirement in the stock market and decided to turn to the Alpaca business for her new retirement plan (University of Phoenix, 2014). She had made a good return the first year of business. There is a risk involved with investing in only one asset. Stable Money Makers demonstrated this when it mentioned how investors lost significant money from investing in Emus in the 1990’s. Diversification is reducing risk by investing in two or more assets whose values do not always move in the same direction at the same time (Parrino, Kidwell, & Bates, 2012, p. 214). Investing in another asset in addition to the Alpacas would improve Peggy's business. If Peggy wants another tangible asset investing in cattle or production of hay are good options. They are not directly related to the Alpacas so if prices fall on Alpacas, and Peggy still has cattle or hay to sell. By investing in more than one asset Peggy decreases her risk and improves her retirement plan.

Other step that Peggy could take in order to improve the capital is to sell additional offspring from the current herd, and reinvested the revenue into more diverse bloodlines. This step will help the herd size to grow and more wool to be produced. It is anticipated that Peggy will incur costs associated with land use, feed, nutritional supplements, supplies and veterinary bills. As her herd expands she will need to expand capacity of her facilities in the form of a new barn. Construction expense for expansion should be approximately $40,000. This capital expense will provide Peggy with the space and capacity to increase her herd size as well as act as a central hub for the alpaca business in her community. Peggy is hoping to add to her revenue stream by doing grooming and wool harvest for other farmers, charging stud services as well as increasing the size of her own herd. Also since the animals are insurable than Peggy’s investment and business can be protected by insurance.

Peggy needs to maximize her tax advantages because that can help with capital improvement. All the feed, fertilizer, and veterinary bills can be written off if the alpacas are raised for profit. Items such as barns, fences, ranch repairs and maintenance will count towards tax write offs as well as tractors, and trailers which have scheduled write offs. Peggy could send her alpacas to a breeder instead of raising them on her own which would help with expenses. She would still make the decisions on sales, care, and feeding.

Reference

Parrino, R., Kidwell, D.S., & Bates, T.W. (2012). Fundamentals of Corporate Finance (2nd ed.). Hoboken, NJ: Wiley.

Rolling Hills Alpacas. (2014). The Financial Aspects of Alpaca Ownership. Retrieved from

http://www.rollinghillsalpacas.com/financialaspect.html

University of Phoenix. (2014). “Corporate Finance Video: Stable Money Makers” [Multimedia]. Retrieved from University of Phoenix, FIN571-Corporate Finance website.