In the video, Corporate Finance Video: Stable Money Makers, Peggy Parks has taken a chance on raising and breeding alpacas. She chooses to do this instead of watching her 401K slowly disappear and have nothing for her senior years. Ms. Parks initially invested $56,000 to buy seven animals to start up the alpaca farm. Her investment is starting to pay off because the original seven have already produced two babies, which will add about $15,000 to the value of her business in the first year. One capital improvement that Ms. Parks should make to her business is to sell the alpaca coat. According to Sugarloaf Alpaca Company, “The fiber they produce has unique qualities and is used by designers in the fashion centers of New York, Tokyo, Paris, and Milan to produce high-end garments” (Sugarloaf Alpaca Company, 2015). Another way Peggy’s can improve her working capital is by expanding her business and incorporate additional animals to breed and sell. Like Peggy said, “one must do research first figure out will be the most profitable.
For example, cattle, chickens, or pigs could be a good addition and investment for Peggy’s business. If Peggy adds to her business, this will reduce the risk of losses and increase her profits that will increase her retirement savings. Although, the cost of land and upkeep for the animals will increase; if done right, her profits will outweigh her cost. Expanding Peggy’s herd and selling the offspring could improve her capital, and she can put the money back into her business until she reaches the profitability point. Peggy could also expand by looking into selling the Alpaca wool, which could be extremely profitable for her.
Peggy’s business can be considered an insurable business, which According to “What Does It Mean To Have An Insurable Interest In Something?” (2015), “is something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses”, which allows Peggy to obtain insurance for her business and be protected. The most important part of this type of business is maintaining the contacts to sell the alpaca fibers to as well as the offspring that Peggy does not want to keep. In a business like this your product is only worth what you can get people to pay for it, as an animal owner personal attachment can cloud an owners view of what the animal or animal product it worth. Keeping the business perspective is essential as well as staying up to date on who is buying what and for how much. Peggy did her research before she got started, but it doesn’t end there now the real struggle begins as she owns living breathing animals with personalities.
Parrino. (2015). Fundamentals of Corporate Finance, 2e. Retrieved from: http://edugen.wiley.com/edugen/student/main.uni Sugarloaf Alpaca Company. (2015). Financial Aspects and Business Opportunities of Alpaca Ownership. Retrieved from: http://www.sugarloafalpacas.com/financial.shtml http://law.freeadvice.com/insurance_law/insurance_law/insurable_interests.htm