BS in Agricultural Business
Taylor Farms has been one of the leading foodservice companies for the past 17 years. It is looking to expand its operations to include a line that would process red and yellow onions. To determine if this expansion would prove to be profitable, a projected budget for three scenarios was created. The scenarios were formulated to account for the “normal” base period, a “worst” case scenario, and a “best” case scenario. These three scenarios would account for periods where revenues and expenses were either higher or lower than the expected averages. The initial start-up costs as well as expenses of day-to-day operations and revenues were projected for each scenario for the period of 2012 to 2017. The addition of the line would prove to be profitable if the cost of start-up was covered within a 5-year period and the internal rate of return was 7% or higher.
The analysis of the projected budgets determined that the “normal” case scenario would cover the initial start-up cost around June of 2017. This would be within the 5-year period, and yield an internal rate of return was only 4.64%. The “worst” case scenario showed negative net incomes and over the time frame would only pay off 4.76% of the initial start-up cost. The internal rate of return was much lower at only 2.06%. The “best” case scenario projected that the initial start-up cost would in fact be paid in full by the end of February of 2014. The internal rate of return was 11,767.77% for the period of 2012 to 2017.