You are required to create a line graph, show the Farm Profit and Loss before taxes ($) for each year. You are required to comment to on business with regards to
- Profitability and if it was a poor, average or good season for wheatproduction
- Create a 2ndline graph, comparing year to year, based on 453 Ha being as share farming, which represents, X Ha of the total managed
Identify the X (unknown), and what are the changes in profit margin to share farming, would the business remain viable if it were to forego share farming.
- Calculate and comment on the Return on Managed Capital(ROMC)
To demonstrate a partial budget, a ‘what if’ question is asked of the ‘Upndowns Farm’: ‘What would be the effect on farm profitability if the prime lamb enterprise was replaced by an expanded self- replacing merino enterprise.
The results, shown in Table 2.1 below, are based on the following assumptions:
- Self-replacing merino gross margin is$56/DSE.
- Prime lamb gross margin is$45/DSE.
- Total DSE in the current prime lamb flock is1,720DSE.
- Asset value of the prime lamb enterprise $168,250 or$98/DSE.
- Asset value of the self-replacing merino enterprise is $806,250 or$112/DSE.
- Opportunity cost of capital is10%.
- There is no change in the pasture
This analysis would indicate that the farm net profit should improve by how much?
In this case, the 1,720 extra merino DSEs are worth $24,080. This is calculated by taking the asset value of the merinos of $112/DSE and subtracting the asset value of the prime lambs of $98/DSE, which gives
$14/DSE added capital. This $14/DSE is multiplied by the added 1,720DSE required, giving $24,080. An extra $24,080 is invested in sheep as a result of this change.
Calculate the return on extra capital based on this, and how would this fair again the return on extra capital.