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					Sauce Processing Business Plan

A paper submitted to The College of Agriculture & Bioresources

For course AgEc 495.3

In partial fulfillment for the requirements of The degree of Bachelor of Science in Agriculture University of Saskatchewan

By Kyle Jordet Jason Fehr Nicholas Petruic December 14, 2007

Saucy Processing

EXECUTIVE SUMMARY Saucy Processing is a small family run operation owned. The primary focus of the business is adding value to Saskatchewan Carmine Jewel (SCJ) Cherries by producing a new and exciting cherry sauce product. The SCJ cherries used in this operation are produced from 300 cherry trees and there are plans to plant 3000 more cherry trees in the spring of 2008. The production of the sauce takes place in a HACCP certified kitchen. Here, the owner along with her three hired workers juice the cherries, manufacture the sauce, bottle it, label and package. The workers training required for this job is all performed on the production site so it minimizes downtime and increases the production efficiency. The finished product is then transported to the climate controlled storage facility where it is held before sold. The finished product is called Cherry Sauce and is sold at two different venues. The sauce is sold during the greenhouse season (April to September) to customers at a local store. The other primary source for sales comes from various farmers markets. These sales are attended during the spring and summer months by the owner and one or two of her employees where a booth is set up to distribute the sauce. The transportation of the product is accomplished by renting a van from Saucy Farms at a rate of $0.38/km which is beneficial because of not having the cost of licensing or maintenance of it. The product Cherry Sauce is a versatile condiment that can be used on a variety of food favorites from pancakes to cheesecake. It is a unique because the current sauce market does not contain a cherry flavored sauce so the product is in a key position to differentiate itself from its competitors. The sauce comes in a 250 mL glass container and is sold for $4.50 per jar. The sauce will be purchased for cash directly by the customer, so no accounts receivable are associated with this product. The target market for this product is the local area and surrounding countryside. The ideal customer for this product is a female aged 35 years and older with a family and is the primary food purchaser in the family. The reasoning for this is that this customer will be the most likely to attend the farmers markets and will be less reserved about trying a new product. To create brand awareness for the product a website will be established and newspapers such as the Western Producer will be used to reach a larger target market and to create interest in the product. At the farmers markets, the booth will focus on attracting potential customers by being
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very visually appealing, and then samples of the product will be available to allow the customers to try the product. Saucy Processing has no long term debt associated with it. All of the required facilities and equipment are already established within its current operation. The production focused on in this report does not require major additional inputs to increase the production to the desired amount. The direct supply of the raw cherries is beneficial because of the decreased risk of not having the key ingredient for processing of the product. The price of $4.50 has a profit $2.78 per bottle of sauce, which allows the price to be adjusted depending on market demand and competitors prices. Saucy processing will begin selling 6,000 bottles of sauce in 2008 and increase its sales over the next ten years by 10% yearly. This will occur because of increased brand identification with the product and this is demonstrated by positive net profits in the financial model (Appendix F) over the next ten years. The IRR for this business is 17.7% and the ERR is 9.8% because the primary shareholders for this business are Kate and Wayne Martens, so no dividends are paid out and can then be used to increase marketing of the product. Saucy Processing has the ability to make a profit. It has very low capital costs, no long term debt and an ample supply raw product. The uniqueness of the product combined with the determination of a committed, profit driven management staff is the recipe required for success in this marketplace. Very Cherry Sauce has the ability to rekindle the love of a customer’s favorite classic food.

TABLE OF CONTENTS Table of Contents ............................................................................................................................ ii List of Figures ................................................................................................................................. v List of Tables ................................................................................................................................. vi 1 Introduction ......................................................................................................................... 1 1.1 Introduction To Saucy Processing .............................................................................. 2
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Operations Plan ................................................................................................................... 3 2.1 Overview of Operations .............................................................................................. 4 2.2 Sauce Production ........................................................................................................ 4 2.3 Capital Budget ............................................................................................................ 4 2.4 Analysis of Capital Budget ......................................................................................... 6 2.5 Costs Of Goods Manufactured.................................................................................... 6 2.6 Direct Materials: ......................................................................................................... 6 2.7 Costs of Production ..................................................................................................... 7 2.8 Direct Labor: ............................................................................................................... 7 2.9 Manufacturing Overhead: ........................................................................................... 7 2.10 Total Costs of Goods Manufactured ........................................................................... 8 2.11 Administration, Marketing, & General Expenses ....................................................... 8 2.12 Working Capital Planning & Management................................................................. 9 2.13 Inventories................................................................................................................... 9 2.14 Accounts Receivable ................................................................................................... 9 2.15 Accounts Payable ...................................................................................................... 10 2.16 Cash Conversion Cycle ............................................................................................. 10 3 Human Resources ............................................................................................................. 11 3.1 Overview of Human Resources ................................................................................ 12 3.2 Job Descriptions ........................................................................................................ 12 3.3 Technical Skills ......................................................................................................... 12 3.4 Wages ........................................................................................................................ 13 4 Marketing Plan .................................................................................................................. 14 4.1 Overview of Marketing Plan ..................................................................................... 15 4.2 Positioning Statement ............................................................................................... 15 4.3 The Marketing Mix (4 P’s) ....................................................................................... 15 4.4 Products and Services ............................................................................................... 15 4.5 Price .......................................................................................................................... 15 4.6 Promotion.................................................................................................................. 16 4.7 Place .......................................................................................................................... 16 4.8 Segmentation............................................................................................................. 16 4.9 Targeting ................................................................................................................... 17 4.10 Positioning ................................................................................................................ 17 4.11 SWOT Analysis ........................................................................................................ 17 4.12 Market Analysis ........................................................................................................ 18 4.13 Past Performance ...................................................................................................... 18 4.14 The Market ................................................................................................................ 19 4.15 Competition............................................................................................................... 19 4.16 Customers ................................................................................................................. 20 4.17 Target Markets .......................................................................................................... 20 4.18 Product Features........................................................................................................ 21 4.19 Opportunity ............................................................................................................... 21 4.20 Sales and Profit Objectives ....................................................................................... 21 4.21 Channels of Distribution ........................................................................................... 22 4.22 Pricing Policy ............................................................................................................ 22
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4.23 Select Markets/Products/Service Mix ....................................................................... 22 4.24 Selling and Advertising............................................................................................. 23 4.25 Marketing Plan Budget ............................................................................................. 23 5 Financial Plan.................................................................................................................... 25 5.1 Overview of Financial Plan ...................................................................................... 25 5.2 Financial Budget ....................................................................................................... 25 5.3 Unit Cost Per Batch Breakdown ............................................................................... 27 5.4 Critical Variables ...................................................................................................... 27 5.5 Break Even Analysis ................................................................................................. 28 5.6 Scenario Analysis...................................................................................................... 29 6 Conclusions ....................................................................................................................... 30 6.1 Conclusion & Suggestions ........................................................................................ 30 7 References ......................................................................................................................... 31 Apendendices ................................................................................................................................ 32 Appendix A. Cherry sauce logo ................................................................................... 32 Appendix B. Expenses ................................................................................................. 33 Appendix C. HACCP Certified Church Processing Kitchen ....................................... 34 Appendix D. Location of Saucy Farms from Saucy Processing located in Nipawin .. 35 Appendix E. Location of Marketplace Store and Church in Nipawin ......................... 35 Appendix F. Base Run Financials ................................................................................ 35

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LIST OF FIGURES

Figure 1 Figure 2 Figure 3 Figure 4

Process of making sour cherry sauce............................................................................... 5 Organizational Structure ................................................................................................ 12 Saucy Farms logo .......................................................................................................... 16 Saucy Processing ........................................................................................................... 28

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LIST OF TABLES

Table 1 Capital Budget for Saucy Processing................................................................................ 6 Table 2 Break down of Direct Materials........................................................................................ 6 Table 3 Total Direct Labor and Benefits ........................................................................................ 7 Table 4 Total Manufacturing Overhead .......................................................................................... 7 Table 5 COGM ............................................................................................................................... 8 Table 6 General Expenses for Saucy Processing ........................................................................... 8 Table 7 Detailed table of employee wages and benefits .............................................................. 13 Table 8 List of sauce competitors ................................................................................................ 19 Table 9 Projected unit sales over a 10 year period. ..................................................................... 21 Table 10 Marketing budget for Saucy Processing ....................................................................... 23 Table 11 Summary of Financial Results ...................................................................................... 26 Table 12 Unit cost breakdown of producing and selling sauce ................................................... 27 Table 13 Critical Variables – Saucy Processing .......................................................................... 27 Table 14 Scenario analysis for Saucy Processing ........................................................................ 29

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1

INTRODUCTION

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1.1

INTRODUCTION TO SAUCY PROCESSING The processing facility is located in the town of Nipawin and the supply of raw product

comes from Saucy Farms. Saucy Processing is the processing division of Saucy Farms that will process the sour cherries into a value added sauce to be used on many delicacies. The demand for new food additives is escalating every year with the increased production of Saskatchewan fruit grown orchard products. The product Cherry Sauce is a versatile product that is best suited for the food condiment industry. The current market for this product is competitive but the unique qualities associated with this product give it an advantage over its competitors. Saucy Processing’s mission statement is to provide consumers a unique, high quality product that has been produced by a hard working Saskatchewan family determined on making their mark in this world. This product, Cherry Sauce, was based on an ideal similar to the early pioneers of this province, to try to grow something non native and produce a superior product demanded by the consumer. The goals set out by Saucy processing are to increase sales and gain brand identification. These two goals go hand in hand with one another, because to increase sales consumers must fist identify the product as something to satisfy a need of theirs. The long term goals are to have annual sales of over 8,500 bottles of sauce by year five of production. To achieve this long term goal the short term goal of increasing brand identity must first be met, or sales will remain similar to the current numbers. This business plan will focus on the production, marketing and financial feasibility of Saucy Processing and it will conclude with suggestions and projections for the business’s future years of production.

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2

OPERATIONS PLAN

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2.1

OVERVIEW OF OPERATIONS Saucy Processing is in the business of making value added sauce out of Sask Carmine

Jewel (SCJ) sour cherries that are purchased from Saucy Farms. Saucy Processing’s operations plan will include an overview of the cost of good sold and its capital budget. It will also cover all management decisions that are associated within the processing company. 2.2 SAUCE PRODUCTION The cherries used by Saucy Processing are purchased in one pound bags from Saucy Farms. They are kept in storage in cold storage. The cherries are then transported to the church where they are put into a steamer juicer which extracts the juice from the fruit meat and it is collected in sterilized pails. The juice is then stored in the cold storage at her store until there is enough collected at which point it is transported back to the church processing kitchen (Appendix C) where the owner and three other women prepare the finished product (Figure 1). The juice is put into a large cauldron and the sugar, lemon juice, corn sauce, and pectin is all added. These products are heated until the appropriate viscosity is obtained, then it is extracted and measured out into 250 mL glass bottles. The bottles have been sterilized and are then sealed with a safety seal and labeled. The finished product is then placed in boxes and is transported to the heated storage area where it is held until the product is transferred to be sold. 2.3 CAPITAL BUDGET The total working capital that will be held by Saucy Processing is $5,319. The majority of the capital held by Saucy Processing is in its final product, the cherry sauce. The remaining capital is held in the equipment used to do the processing.

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Figure 1 Process of making sour cherry sauce
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2.4

ANALYSIS OF CAPITAL BUDGET

Table 1 Capital Budget for Saucy Processing
Description: Equipment: Steamer Juicer Working Capital Total Capital Estimated Cost: $400 $5,319 $5,719 Source of Estimate: 2 x $200 Kate Martens

The capital withheld in Saucy Processing is very minimal. The company rents all the buildings associated with the processing, storage, and the selling of the product. The capital consists of two steamer juicers that are valued at $200 a piece as well as the total working capital associated with business. 2.5 COSTS OF GOODS MANUFACTURED The cost of Goods manufactured is $16,805. This includes a direct materials cost of $10,334, for cherries, packaging and ingredients. The direct labour cost was $2,336, for the owner and three employees. The manufacturing overhead was $40 for depreciation on the equipment. This follows the CCA values of 20% on equipment, but only 10% is used for the first year. Also included in the manufacturing overhead are the variable costs of the church rental, heated storage rental, and rental of the company van from Saucy Farms, giving a total of $4,134 for manufacturing overhead. 2.6 DIRECT MATERIALS:

Table 2 Break down of Direct Materials Input Price* Amount/ batch Cherries $2.50/lb 12 lbs = $30.00 Sugar 0.06/oz 96.91 oz = $5.82 Lemon Juice 0.08/oz 0.5 oz = $0.04 Corn Sauce 0.20/oz 32.3 oz = $6.46 Pectin 0.85/oz 0.5 oz = $0.43 Total/ Batch $42.75 *The prices listed above come from Kate Martens, for the cherries, and Netgrocer, available at http://shop.netgrocer.com.

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2.7

COSTS OF PRODUCTION

60 jars/batch = ($42.75/batch)/60 jars =$0.71 /jar + $1 (cost of glass jar) + $0.01 (Cost of Pallets) =$1.72 / total jar cost

16 batches/ 8 hr day = 16 batches * 60 jars/batch =960 jars/day

960 jars/day * $1.72/ total jar cost =$1,653.60/day

$1,653.60/day * 6.25 days/yr = $10,334/yr total cost of sauce 2.8 DIRECT LABOR:

Table 3 Total Direct Labor and Benefits 8 hours per day x 6.25 days per year $15/ hour x 0.25 $8.50 / hour x 0.75 Total Wage/hour Total Benefits Total Direct Labor and Benefits 2.9 MANUFACTURING OVERHEAD: Kate (Manager) Workers (3) = 50 hours/year = $3.75 = $6.38 = $10.13 x 50 hrs x 4

$2,026 $310 $2,336

Table 4 Total Manufacturing Overhead Fixed Overhead Costs: Depreciation on Equipment Variable Overhead Costs: Church Rental Processed Storage (Abe’s Rent-a-Bay) Company Van Rental Total Manufacturing Overhead @ 10% $40 $60 $1,800 $2,234 $4,134
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The rental of the HACCP approved church kitchen is $10.00/day. To rent a bay, the charge is $150/month which will cost the company a total of $1,800/year. Saucy Processing rents a cargo van from Saucy Farms for $2,234/year. This is calculated by taking the owner’s average distance to farmer markets (140 km) and multiplied by the cost of gasoline/km and depreciation on the vehicle ($0.38). This is then multiplied by 140 (this being the number of markets per year on average she attends) and then multiplied by 30%. This is because the transportation of sauce takes up only 30% of the room in the van as other good for sale are also being transported in the van at the same time. 2.10 TOTAL COSTS OF GOODS MANUFACTURED Table 5 COGM Total Direct Materials Total Direct Labor Total Manufacturing Overhead Total Cost of Goods Manufactured $10,334 $2,336 $4,134 $16,805

2.11 ADMINISTRATION, MARKETING, & GENERAL EXPENSES The owner is the sole person responsible for all administration and all other related responsibilities. She manages all the organizational tasks associated with processing of the cherries. General Expenses Assumptions: The assumptions for general expenses are as follows. For the administration costs it is assumed that she spends one hour a day each working day (260) performing these tasks. Table 6 General Expenses for Saucy Processing Description: Administration Costs: Kate Martens Benefits: Total costs/year Estimated Cost: $15 x 1hour/day = $3,900 $371 $4,271 Source of Estimate: 260 working days per year Appendix F

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2.12 WORKING CAPITAL PLANNING & MANAGEMENT 2.13 INVENTORIES The inventories involved in the cherry production fall into two categories: -raw goods & finished goods Raw Goods The cherries that are bought by Saucy Processing from Saucy Farms are cleaned, washed and packaged in plastic bags that hold one pound of product at the cost of $2.50/lb. They are then held in Saucy Processing’s inventory from 1 to 5 days until they are juiced then stored in a freezer. The juice is stored in the freezer until the required amount is obtained and then it is transported by van to the church kitchen where it is processed into finished goods. The raw products are supplied by Saucy Farms as needed, because they possess adequate storage facilities, so Saucy Processing does not require large amounts of raw product on hand at all times, therefore inventories are minimal. Finished Goods The finished goods are prepared in the church kitchen. It’s here where the goods are made, bottled, labelled and packaged. The finished goods then will be transported to the heated storage space where they are to be stored up to an average of 150 days, meaning that at any given time there is $1,262 worth of product available in the storage facility. The goods are stored there until they are sold. 2.14 ACCOUNTS RECEIVABLE The accounts receivable for the Saucy Processing business are not applicable. Saucy Processing sells the product directly to consumers. This system creates no accounts receivable because product is traded for money at the point of transfer and therefore no money is owed at a later date. Saucy Processing’s current clients do not purchase quantities of her product large enough that would make the transaction process more beneficial to either party.

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2.15 ACCOUNTS PAYABLE The accounts payable for Saucy Processing is set at 30 days. The raw cherries are purchased from Saucy Farms and are put on a 30 day payment period where Saucy Processing will pay all current debts. During the first year of production, Saucy Processing’s approximate accounts payable balance will be at the maximum $1,729 for the year. The ingredients used to create Kate’s finished goods are very few and are paid for upon obtaining them so the accounts payable rarely accumulates for them. 2.16 CASH CONVERSION CYCLE The cash conversion cycle is as follows: The processing of the product can be completed in 6.25 days in year one, therefore it will remain in storage for large periods of time. The products will be moved out throughout the spring and summer months. The processed product will remain in storage over the winter, until the store in Nipawin reopens and farmers markets resume. CCC= Average Days Inventory + Average Collection Period – Average Days Payables CCC = 155 + 0 – 30 = 125 days

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3

HUMAN RESOURCES

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3.1

OVERVIEW OF HUMAN RESOURCES Human resources for Saucy Processing are a relatively small overall cost. The operations

consist of four employees, the owner is the manager and three general workers. Chain of command and technical skills will be accounted for within the human resources 3.2 JOB DESCRIPTIONS The job description for the processing of the cherries is quite clear. Saucy Processing requires a total of 4 people to be able to effectively process the cherries. The types of employees that she hires are middle aged women. She prefers this age demographic to others because of their motivation and possession of the proper skill set required to thrive in this type of job environment. The chain of command is shown clearly in the below figure.

Figure 2 Organizational Structure 3.3 TECHNICAL SKILLS The women hired to work in the processing line have to be self motivated and must be competent workers who do not need to be looked over all of time. There are four main jobs to be performed during the process. 1. Mix the Ingredients 2. Jar sterilization 3. Pour the sauce 4. Sealed and labeled These skills are taught on the job by the owner. She spends an hour on average with every new employee to make sure that they know the proper tools that are required to perform the
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tasks. She takes on this task because she is in the lead managerial position; therefore she is very experienced with all jobs that are involved in the processing line. 3.4 WAGES The owner is being paid $15/hour because she is in the managerial position and supplies all the workers with on the site training. The other three employees are paid $8.50 an hour and are guaranteed an eight hour day when ever they are required to work. At the current production, they are required to work 6.25 eight hour shifts. Table 7 Detailed table of employee wages and benefits Wages: The owner (Manager) Wage for manager = $15.00 x 0.25 Employees (3) Wage for employee = $8.50 x 0.75 Total Wage Total Direct Labor (Total Wage) x (8 hours) x (6.25 days) x (4 employees) Benefits: Employment Insurance 1.87% Canada Pension Plan 4.53% Holiday Pay 5.80% Workers Compensation 3.12% Total Benefits Total Benefits for employees per year (Total Benefits)x(8 hours)x(6.25 days)x(4 employees) Total Direct Labor & Benefits $0.18/hour $0.46/hour $0.59/hour $0.32/hour $1.55 /hour $310 $2,336

= $3.75 = $6.38 $10.13/hour $2,026

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4

MARKETING PLAN

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4.1

OVERVIEW OF MARKETING PLAN Saucy Processing’s marketing plan outlines how the company is going to position its

product in the marketplace. It will focus on the ideal customer and the best possible methods to sell the product to maximize sales. 4.2 POSITIONING STATEMENT

“If you consider food as a way to express your inner creativity and enjoy new and exciting experiences, then Cherry Sauce is a way to add a fresh stimulating new flavor to your favorite dishes.” 4.3 4.4 THE MARKETING MIX (4 P’S) PRODUCTS AND SERVICES The product produced at Saucy processing is sour cherry sauce. This sauce is made from Saskatchewan Carmine Jewel sour cherries, which are grown at Saucy farm. The cherries are not organic and the sauce is the primary product marketed. Saucys branded name for their sour cherry sauce is Cherry Sauce. This sauce is a versatile meal condiment that can be used successfully with a variety of food products from pancakes to chicken fingers. As a Saskatchewan grown and produced product, Cherry Sauce appeals to Saskatchewan resident’s patriotism towards their local industry. 4.5 PRICE Saucy Processing will sell their sauce for $4.50/250 mL bottle. This allows Saucy processing to pay for the cost of its cherries and other materials, as well as labour, facilities and other costs while still making a modest profit. This is a competitive pricing strategy. The product cannot be differentiated enough from its competition to justify a premium pricing strategy. However, because this is a specific product being processed and marketed directly there is no need to be a price taker as is the case in commodity agriculture. This price allows Saucy to be competitive with similar products on the market, which improves the ability to sell. Had the price been too high, consumers would have purchased a different product. However a price too low would mean that, regardless how well it sells profit cannot be attained after expenses. This price offers a good medium between the two.
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4.6

PROMOTION The new label for Saucys cherry sauce includes a picture of a cherry and the Saucy farm

logo, which depicts a variety of fruits and vegetables (Appendix A). The cherry allows the customer to identify the flavour, and conveys an impression of an exotic, tasty, juicy product. The logo gives the impression of fresh food, grown locally on a farm close to home. Many prairie consumers support local businesses, and want a healthy meal choice, which this logo implies. It makes people feel good about buying the product. Saucy Farm has appeared on Prairie Farm Report as a representative of the fruit industry discussing modern advances in the industry. A website will be created for Saucy to showcase its product and values. At farmers markets there will be a visually appealing display for the use of selling the products while at these events. The owner also writes article’s frequently about cherries as well as donates her products to many charities to create brand awareness with the public. Figure 3 is an example of Saucy Farms’ logo.

Figure 3 Saucy Farms logo 4.7 PLACE Currently Saucy is selling sauce in their marketplace store. The product is also sold at farmers markets. The strategy is to market the sauce directly to the consumer. Saucy’s website will open up a new possible avenue for sales once it has been established. 4.8 SEGMENTATION The segment of the market that Saucy’s sauce will be marketed in is the food condiment market. The company is aiming at women 35 years and older. This is the range of people who are most likely to purchase this product. Being female, they are the primary food supplier for the
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family. They are also more adept to stop and try a new flavor or brand rather than just pick up the first product that meets their eye. 4.9 TARGETING In the area there are approximately 1510 women over the age of 35, or 66% of all women and or 35% of the general population in the area that the most marketing will be focused on. The sauce will be one of the only sour cherry varieties that will be currently on the market. Because of this, the hope is to establish brand loyalty before the next wave of sour cherry products enters the retail chain. During tourism and cottage season, the summer population increases 23%. This supplies the company with additional potential customers within Saucys’ peak sales months. 4.10 POSITIONING Saucy processing will market its product as specialty sauce. Currently in the market there are a lot of maple sauces with a few blueberry type sauces. Therefore there is room for sour cherry sauce in the market. Overtime this will allow the consumer to become familiar with the distinct and appealing flavor and taste. Whether as a breakfast condiment or simply used in a dessert, the consumer will recognize the product as a truly unique and flavorful experience.

4.11 SWOT ANALYSIS

Strengths:
Human resources  Training is on the job  Direct supervision from manager  Manager is ambitious and dedicated  Low cost for wages  Low labor intensity  Hours are flexible

Weaknesses:
Human Resources  Availability of skilled workers  Work can be dangerous  Work is not constant  Work area is small  Requires constant manager supervision
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   

The workers have been together for many years Workers get along well Small chain of command Small family oriented business

Physical Resources Physical Resources  Church rent is $10/day  Roads for transport are mostly gravel  Church is HACCP certified -possible threat in winter months  Close proximity to Nipawin  Dependent on outside source for  Store is located on Nipawin’s main processing street  Weak product image  Ample supply of cherries to process  Narrow product line  Cherry supply is close to processing plant (9 km) Financial Resources  No accounts receivable  No long term debt Financial Resources  High CCC  Accounts payable every 30 days  Profits are dependent on sales alone

Opportunities:
   Sour cherry industry is new Lots of potential It’s a versatile product -can be used on a variety of food products -can be used at multiple meal times Potential in catering industry

Threats:
     Other Sask. made fruit products Weather; drought and frost Health conscious consumers, i.e.: no desserts Thousands of acres soon to enter production. Cherry supply is surrounded by forest. Fire Hazzards



4.12 MARKET ANALYSIS 4.13 PAST PERFORMANCE Saucy Processing previously sold their product exclusively at a small number of farmers markets, with minor sales coming from the store where they were averaging approximately 3,000 units sold per year. This technique allowed for all of the previous supply of sauce to sell out quickly, leaving it in demand.
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Over the next few years, the sour cherry sauce line is to be expanded to supply a greater market for the product. Success in both the farmers markets and the increased success of the sales in the store should make it possible to expand the production of the line. 4.14 THE MARKET The potential market for the sauce is very positive. The target market is 35 years and older female demographic. In the area, 66% of the women fall into this category. By marketing the product through Saucys’ webpage this will allow the sauce to gain access to many other potential markets. Therefore, this is a significant market to gain access to. 4.15 COMPETITION Table 8 List of sauce competitors Product Pure Organic Maple Sauce Canada No. 1 Medium Aunt Jemima Original Table Sauce Smuckers sauce squeeze bottle RP Saskatoon Berry Sauce PGF Prairie Berry Sauce Attractions -An organic sauce -Attractive to the new health awareness consumer(organic) -The most recognizable brand name in sauces -Brand name sauce -Safe choice -In province competition -Premium product -In province competition -Specialty Sauce Price (Cdn$) $ 12.89/500 mL

$ 3.99/250 mL $ 4.49/250 mL $ 8.75/250 mL $ 5.75/250 mL

Within the sauce market, it can be safely assumed that the Aunt Jemima and Smuckers brands are the two most recognizable and control the most of the market share for these products. These two brands have market dominance because their products are distributed by many of the major grocery store chains. The public perception for these two brands is also positive because their name is trusted in the market place. The sour cherry sauce is a unique product because it is one of the first of its kind to be introduced to the market place. This will put the sauce in its own unique category. With today’s ever increasing emphasis on healthier foods and diet the product should be looked upon as a healthier option than the traditional maple type of sauces because of the word cherry in the name.
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With there being very few sour cherry sauces currently on the market, pressure from direct competition should be very sparse. The bigger companies, like Smuckers will not enter this little market. The main source of competition will be the smaller fruit processors that will soon start production. Saucy Processing, being a pioneer in the sour cherry sauce market, will be able to rely on brand loyalty towards their product and should be able to keep the product ahead in the market. 4.16 CUSTOMERS Women that are in a relationship, or have a family are the most likely to purchase the product. An average family using the sauce has the potential to go through an average of two units of sauce per month. This is one of the ways to establish brand loyalty as they will have to keep coming back for more of the product. The consumer of this sauce is going to be one who is willing to take the time to try a new product. The sauce will be positioned as a healthier choice and being a locally produced product, it will be positively recognized by consumers who will potentially support the community. This type of mentality is the underlying feature that makes up the 100 mile diet. People who abide by this diet agree only to purchase products that have been produced within 100 miles of their residence. The goal of this diet is to promote rural development and growth. 4.17 TARGET MARKETS The main target markets for Cherry Sauce are the food condiment market and the locally grown prairie market. The easiest market to enter is the farmers markets, as this is where Saucy currently is established. They also sell sauce in their marketplace store which has great potential to increase sales, because the sales are minimal compared to the sales from the farmers markets at this point in time. Saucy has an advantage in that they are the only company producing sour cherry sauce in these markets which is a very defining feature. The price is also very competitive compared to other products in the market. The selling is done by Saucy employees at both the local store and farmers markets, so a personal connection exists. This is a positive feature in both of these markets. The greatest potential niche market for Saucy is the Saskatchewan produced market, because Saucy has very little competition here and can pursue this market with few threats in the market at this point.
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4.18 PRODUCT FEATURES Saucys Processing produces sour cherry sauce, made from Sask. Carmine Jewel cherries grown on Saucy Farms in Saskatchewan. The sauce is produced locally so it is 100% prairie produced. The sauce is a food condiment that can be used with a wide range of foods from pancakes to chicken fingers making it a very versatile product in terms of where it can be used. The product is also reasonably priced. The advantages over the competition are the locally produced status, and the fact that it uses fresh, locally grown fruit. Also being one of the first sour cherry sauces to be placed in the market allows them to gain an edge over the competition. The local consumers will see that this is a Saskatchewan small business and will want to support them, where Saucy has most of its public relation events. The product has good potential in these markets. 4.19 OPPORTUNITY Saucy has great potential in the food condiment market, and locally produced market. There is little competition in these markets so the product will have an advantage over its competitors because of its unique taste. With good promotional work and continued positive customer experiences the doors will open wide in this market. 4.20 SALES AND PROFIT OBJECTIVES The objective is to gain brand identification for Saucy Processing and to develop a strong relationship with customers. Table 9 Projected unit sales over a 10 year period. Product Sauce(jars) Assumptions: -web sales -increased sales at farmers markets -increased sales at store The cherry trees will not be planted until the spring of 2008. The initial sales in year one are to be doubled from the previous sales of 3000 units to 6000 per year. When the trees reach
21

Yr 1 Yr 2 Yr 3 Yr 4 6,000 6,600 7,260 7,986

Sales (units) Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 8,785 9,663 10,629 11,692 12,862 14,148

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full maturity and maximize their potential then production will be increased accordingly. As this happens, sales are estimated to increase at a rate of 10% annually. By having a product already in production and being purchased by consumers, Kate’s Very Cherry Sauce is in a position to increase sales over the next 10 year period because of its increasing brand awareness. 4.21 CHANNELS OF DISTRIBUTION The channel of distribution for the sauce will be to sell directly to an end user via the marketplace store and the various farmers markets. The product will be shipped using Saucy Farms company van for $2,234/year as previously discussed and calculated in manufacturing overhead (page 7) The main competitors sell their products using distributors. This system allows the competitors to access a larger market than Saucy Processing as they do all distribution of their product themselves. 4.22 PRICING POLICY The pricing policy for Cherry Sauce will be market-based. The reasons for this are because the price $4.50 per bottle is very competitive with other sauce products within the same category. This price can be raised or lowered according to market movement in the future and as demand increases for the product. 4.23 SELECT MARKETS/PRODUCTS/SERVICE MIX The target market focused on is females over 35 years of age who enjoy cooking. The product to be purchased by this group is sour cherry sauce that can be used as an addition to a variety of food products. The goal is to have a competitive product within the sauce market, but to differentiate the product because of its superior taste and uniqueness. This product has an advantage over its competitors because it has a direct connection to the supply of raw product needed to produce the sauce, and also because it has the ability to lower its price and still maintain a profit, so it can be very price competitive.

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4.24 SELLING AND ADVERTISING To create brand identity advertising will be the major tool used. The methods of advertising that will be used are as follows:     Create a website Banners at farmers markets Taste tests at farmers markets Charitable Donations    TV interviews Pamphlets Western Producer

The company that will be designing the website is called Cowboy Orientated Websites. The start up cost for this website is seen in Table 10 and there will also be a web hosting fee of $500.00 per year. This website was recommended as a positive choice because of its previous success for other products. The farmers markets will have two tools of advertising associated with it; first a large banner with its purpose to attract potential customers to the booth and then a taste testing station where customers can sample the sauce on a product they would normally consume. The owner has already had an interview on the TV show Prairie Farm Report and this method will be used again to follow up the progress of her operation.

4.25 MARKETING PLAN BUDGET Table 10 Marketing budget for Saucy Processing Advertising Western Producer Ad Pamphlets Banner Total Advertising Promotion and Development
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Price $116 $30 $300 $446

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Web Page Sample Product TV Interviews Donations Marketplace Store Farmers Market Total Promotional and Development Total Marketing Expense * refer to Appendix B

$1,500 $1,890* No cost $500 $1,350 $1,080 $6,320 $6,765

The cost associated with the marketplace store is $1,350 per year, rented from Saucy Farms. This is calculated by talking 1/3 of the combined costs of the property taxes (1,500) and building value ($3,000). The space provided from the farmers markets is also rented from Saucy Farms. This is 1/3 the cost of the average yearly registration ($100) added to the cost of a table ($25), multiplied by the average attendance of markets (140) yearly.

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5

FINANCIAL PLAN

5.1

OVERVIEW OF FINANCIAL PLAN The financial plan for Saucy Processing covers the financial base model run for the

company. It is seen in Appendix F. This determines key financial numbers required to perform a proper evolution of the company. 5.2 FINANCIAL BUDGET Saucy Processing demonstrates a positive financial model. This business has good internal rate of return at 17.7%. This shows that the business can be profitable because of its low capital costs and it has no long term debt associated with the company. The external rate of return is
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lower, 9.8%, because there are no dividends being paid out to the share holders of the company. This allows the company to reinvest all its retained earnings back into the company, allowing opportunities for the company to be able to increase its marketing potential. As seen in Table 11, the company has a large gross margin because the company has very minimal costs of goods sold. This allows Saucy Processing to retain a high net income from all of its sales of their product. Saucy Processing also has a high net cash flow as there is no debt to be repaid. Cash flow at the end of each year in Saucy Processing is positive. This is a positive for the company because there will be no need to supply any additional equity to the business in the starting of any given year to cover debts accumulated. Table 11 Summary of Financial Results Year Sales COGS Gross Margin Expenses Net Income Before Tax Income Tax Net Income After Tax Net Cash Flow to Equity 2008 27,000 9,899 17,101 11,037 6,065 606 5,458 5,579 2009 30,924 18,028 12,266 10,864 1,402 140 1,262 6,652 2010 33,990 20,225 13,765 12,138 1,627 163 1,464 7,500 2011 38,137 22,672 15,464 13,567 1,897 190 1,708 8,452 2012 42,789 25,422 17,367 15,169 2,198 220 1,979 9,523

Year Sales COGS Gross Margin Expenses Net Income Before Tax Income Tax Net Income After Tax Net Cash Flow to Equity

2013 48,010 28,534 19,476 16,965 2,510 251 2,259 10,747

2014 53,867 32,037 21,830 18,980 2,810 285 2,565 12,117

2015 60,439 35,935 24,504 21,239 3,265 326 2,938 13,632

2016 67,812 40,292 27,520 23,773 3,747 375 3,373 15,334 (3,792) 17.7% 9.8%

2017 76,085 45,185 30,900 25,521 5,379 538 4,841 14,044

Net Present Value (NPV) Internal Rate of Return on Equity Investment External Rate of Return on Equity Investment
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5.3

UNIT COST PER BATCH BREAKDOWN

Table 12 Unit cost breakdown of producing and selling sauce Unit Cost Per Batch* 2008 2009 2010 2011 Cherries $30.00 $30.60 $31.21 $31.84 Ingredients 13.00 12.99 13.25 13.52 Packaging Materials 61.00 61.81 63.05 64.31 104.00 105.40 107.51 109.67 Total Unit Cost of Direct Materials Direct Labor 20.00 20.67 21.08 21.50 Overhead 41.34 42.42 43.07 43.80 61.34 63.09 64.15 65.30 Total Unit Cost of Labor and Overhead 165.34 168.49 171.66 174.97 Total Cost of Production Selling and Administration 110.00 96.76 100.31 101.93 275.34 265.24 271.97 276.90 Total Unit Cost of Selling Expected Average Selling Price 270.00 275.40 280.91 286.53 * An average day produces 16 batches; 16 batches/day * 6.25 working days = 100 batches/yr 2012 $32.47 13.79 65.60 111.86 21.93 44.57 66.50 178.36 103.61 281.97 292.26

Numbers are calculated from the total per year (financial worksheet) divided by 100. The years following 2008 have an increased production percentage of 10 associated with them (2009 is divided by 110, etc).

As shown in Table 12, the average selling price of the sauce is positive as compared to the cost of producing and selling the product. Year 1 shows a loss because of the initial start up marketing costs such the website and the banner. The following years show that the business is profitable every year.

5.4

CRITICAL VARIABLES

Table 13 Critical Variables – Saucy Processing Critical Value Unit Price Quantity of Sales Wages Price of Raw Cherries Base Case $4.50 6000 $10.13 $2.50/lb IRR=0% $3.88 5,176 $29.92 $6.34/lb Allowable % Change 13.8% 13.7% (194.3)% (153.6)%

Saucy Processing’s most critical variable is the quantity of sales. This is because all expenses are all directly linked to the amount of sales per year. This is very critical in sustaining
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the business because as expenses are directly linked to sales, increases in sales result in increases of expenses through out the entire financial model. 5.5 BREAK EVEN ANALYSIS
25000

20000

# of Units Sold

15000

10000

5000

0 2008 2009 2010 2011 2012 Year Base Case Economic Breakeven Cash Flow Breakeven Net Income Breakeven 2013 2014 2015 2016 2017

Figure 4 Saucy Processing The break even analysis shows the production that Saucy Processing could operate to achieve breakeven status. Economic breakeven shows the amount of sales that must be obtained to keep the business afloat. Cash flow break even fluctuates yearly to show the amount of sales that must be sold in order to observe breakeven cash flow. In order to observe zero cash flow in year 1 sales could be no lower than 4,625. Net income breakeven goes off of the chart after year 2. This is because every expense associated with this business is tied directly to sales. If Saucy Processing ever wanted to greatly increase production of its sauce, expenses would rise with the production, so there would not be any observations of economies of size for the increasing output of products in this business. Economies of size dictate that as total production increases, costs per unit of producing that product should decrease. Since expenses are tied to sales, this is not
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the case for this business. To observe net income breakeven, sales of sauce will have to vastly increase. 5.6 SCENARIO ANALYSIS

Table 14 Scenario analysis for Saucy Processing Variable Number of Sales Average Price NPV IRR Worst Case 4500 $3.37 (76,767) 0% Base Case 6000 $4.50 (3,792) 17.7% Best Case 7500 $5.63 82,175 58.7%

When 25% is subtracted or added to the Base Case model the above results are determined. The business can survive if either the price or the sales is decreased, but it suffers exponentially when both of these critical variables are below the base case. Management must monitor these two variables closely so that if one of these two variables falls, then preventative measures can be implemented to negate the possibility of a complete loss for the year.

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6

CONCLUSIONS

6.1

CONCLUSION & SUGGESTIONS Saucy Processing has the potential to sell the total projected production of Cherry Sauce.

With an increased marketing budget, this should allow the opportunity for a larger market share for the company to capitalize on. From the financial model run there is a positive net income through out the ten year run. This shows the business is able to sustain itself if it achieves the required sales goals. The Net Present Value (NPV) is negative for this business because IRR has to equal 20% or greater to show positive NPV while Saucy Processing’s is 17.7%. This does not mean that the business is unfeasible; rather it requires careful monitoring of its business structure in order to keep the business running efficiently.
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With very little overhead costs, no long term debt the processing line should be able to successfully run for many years in the future. If Saucy Processing is able to successfully sell all of its units of sauce, the base run financial plan shows that the company is financially sound. With Saucy Farms expansion of 3000 additional sour cherry trees, Saucy Processing will not be able to handle all the processing of the raw cherries. An option for the excess raw cherries would be to wholesale them to a larger processing firm that is able to use the cherries in other areas other than the sauce market. An example would be to wholesale the raw cherries to Riverbend Plantation for use in one of their jam like spreads. One factor that can be considered by management is to increase the price the sauce is sold at. Judging by the competitors prices, Cherry Sauce price is at the lower end of the spectrum in the Saskatchewan produced market. There is room to increase sales and not be categorized as a premium product in this market.

7

REFERENCES

APLUS Kitchen Equipment [Online]. Available at http://apluskitchenequipment.com (Verified October 10, 2007) Cowboy Orientated Web Sites [Online ]. Available at http://www.thecattle.net . Verified on November 3, 2007 Kate Martens. Phone Conversations, emails, meetings. Between September 2007 and November 2007. Net Grocer [Online]. Available at http://shop.netgrocer.com (Verified October 9, 2007) Richards Packaging [Online]. Available at http://richardspackaging.com (Verified October 11, 2007)

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Shop Sobeys [Online]. Available at http://www.shopsobeys.com . Verified on November 4, 2007 Town of Nipawin [Online]. Available at http://nipawin.com (Verified October 11, 2007)

APENDENDICES APPENDIX A. CHERRY SAUCE LOGO

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APPENDIX B. EXPENSES Van Rental Expenses Average farmers market distance Total farmers markets per year Average cost per trip Total cost for distribution Travel Expense Cost for travel to farmers markets = $7,448/yr * 10% =$744.80/yr = 70 km = 7/week * 20 weeks = 140/yr = 70 km * 2(there & back) * $0.38/km = $53.20/trip = 140 trips/yr * $53.20/trip = $7,448/yr

* Sample Product -estimated on an average of 3 bottles per market = 3 * $4.50 = $13.50/market =$13.50 * 140 markets per year =$1,890/yr Banner costs come from Tarpco Tarp Manufacturers located in Corinne, Saskatchewan

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APPENDIX C. HACCP CERTIFIED CHURCH PROCESSING KITCHEN

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APPENDIX D. LOCATION OF SAUCY FARMS FROM SAUCY PROCESSING

APPENDIX E. LOCATION OF MARKETPLACE STORE AND CHURCH

APPENDIX F. BASE RUN FINANCIALS
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Your Business's Name Financial Projections Statement of Income and Retained Earnings For the year ended December 31 Sales Revenue: Cherry Syrup Product #2 Product #3 Product #4 Product #5 Product #6 Product #7 Product #8 Total Sales Revenue Cost of Goods Sold Gross Profit

Grindstone Processing Input Description

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Schedule 2 Schedule 2 Schedule 2 Schedule 2 Schedule 2 Schedule 2 Schedule 2 Schedule 2 =Sum Schedule 4 = A16-A18

27,000 27,000 9,899 17,101

30,294 30,294 18,028 12,266

33,990 33,990 20,225 13,765

38,137 38,137 22,672 15,464

42,789 42,789 25,422 17,367

48,010 48,010 28,534 19,476

53,867 53,867 32,037 21,830

60,439 60,439 35,935 24,504

67,812 67,812 40,292 27,520

76,085 76,085 45,185 30,900

Administration, Marketing and General Expenses Marketing Expenses Administration Salaries Interest on Long Term Debt Total Admin & Marketing Expenses Income Before Taxes Income Taxes Net Income (Loss) Beginning Retained Earnings Net Income (Loss) Dividends Ending Retained Earnings Balance Sheet as at December 31 Assets Current Assets: Cash Accounts Receivable Total Inventories Total Current Assets Long-Term Assets: Buildings, Machinery & Equipment Accumulated C.C.A. Land Total Long-Term Assets Total Assets Liabilities Current Liabilities: Accounts Payable Long-Term Liabilities Long Term Debt Total Liabilities Owner Equity Owner Equity Retained Earnings Total Owner Equity Total Liabilities and Owner Equity

Schedule 5 Schedule 5 Schedule 8 =Sum = A19 - A25 Schedule 10 = A27 - A28

6,765 4,271 0 11,037 6,065 606 5,458 5,458 5,458

6,071 4,792 0 10,864 1,402 140 1,262 5,458 1,262 6,720

6,761 5,377 0 12,138 1,627 163 1,464 6,720 1,464 8,184

7,534 6,033 0 13,567 1,897 190 1,708 8,184 1,708 9,891

8,400 6,769 0 15,169 2,198 220 1,979 9,891 1,979 11,870

9,371 7,595 0 16,965 2,510 251 2,259 11,870 2,259 14,129

10,459 8,521 0 18,980 2,850 285 2,565 14,129 2,565 16,694

11,678 9,561 0 21,239 3,265 326 2,938 16,694 2,938 19,632

13,045 10,728 0 23,773 3,747 375 3,373 19,632 3,373 23,005

14,578 10,942 0 25,521 5,379 538 4,841 23,005 4,841 27,846

= A29 Schedule 7 = A31+A32-A33

2008 =A68-A50-A43-A42 Working Capital Working Capital =Sum 5,579 7,048 12,627

2009 12,232 7,919 20,150

2010 19,732 8,875 28,607

2011 28,184 9,950 38,135

2012 37,708 11,158 48,866

2013 48,454 12,531 60,985

2014 60,571 14,067 74,638

2015 74,203 15,770 89,974

2016 89,538 17,684 107,222

2017 107,770 19,834 127,603

Schedule 6 & 9 Schedule 9 Schedule 6 =Sum = A44 +A50

400 (40) 0 360 12,987

400 (112) 0 288 20,438

400 (170) 0 230 28,838

400 (216) 0 184 38,319

400 (253) 0 147 49,013

800 (322) 0 478 61,463

800 (418) 0 382 75,021

800 (494) 0 306 90,280

800 (555) 0 245 107,467

800 (604) 0 196 127,799

Working Capital

1,729

1,940

2,177

2,442

2,740

3,074

3,449

3,870

4,342

4,782

Schedule 8 = A56+A57+A59

0 1,729

0 1,940

0 2,177

0 2,442

0 2,740

0 3,074

0 3,449

0 3,870

0 4,342

0 4,782

Schedule 7 ST of Income & R.E. =Sum = A61 +A66

5,800 5,458 11,258 12,987

11,779 6,720 18,499 20,438

18,477 8,184 26,661 28,838

25,985 9,891 35,877 38,319

34,403 11,870 46,273 49,013

44,260 14,129 58,389 61,463

54,877 16,694 71,571 75,021

66,778 19,632 86,410 90,280

80,119 23,005 103,124 107,467

95,171 27,846 123,017 127,799

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Statement of Cash Flow For the year ended December 31 Cash In-Flow From (Used-In) Operating Activities: Net Income (Loss) ST of Income & R.E. Depreciation Schedule 9 Change in Accounts Payable Balance Sheet Change in Accounts Receivable Balance Sheet Change in Inventory Balance Sheet Net Cash From (Used-In) Operations =Sum Cash In-Flow From (Used-In) Financial Activities: Owner Equity Long Term Debt Dividends Net Cash From (Used-In) Financial Activities Balance Sheet Balance Sheet ST of Income & R.E.

2008 5,458 40 1,729 (7,048) 179

2009 1,262 72 211 (871) 674

2010 1,464 58 237 (957) 802

2011 1,708 46 266 (1,075) 944

2012 1,979 37 298 (1,208) 1,105

2013 2,259 69 334 (1,373) 1,290

2014 2,565 96 375 (1,536) 1,499

2015 2,938 76 421 (1,704) 1,732

2016 3,373 61 472 (1,914) 1,992

2017 4,841 49 440 (2,149) 3,181

5,800 0 5,800

5,979 (0) 5,979

6,699 (0) 6,699

7,508 (0) 7,508

8,418 (0) 8,418

9,857 (0) 9,857

10,618 (0) 10,618

11,900 (0) 11,900

13,342 (0) 13,342

15,051 (0) 15,051

Cash In-Flow From (Used-In) Investment Activities: Buildings, Machinery & Equipment Land Net Cash From (Used-In) Investment Activities Increase (Decrease) in Cash Beginning Cash Ending Cash Balance Sheet Schedule 6 (400) (0) (400) 5,579 5,579 6,652 5,579 12,232 7,500 12,232 19,732 8,452 19,732 28,184 9,523 28,184 37,708 (400) (400) 10,747 37,708 48,454 12,117 48,454 60,571 13,632 60,571 74,203 15,334 74,203 89,538 18,232 89,538 107,770

=C79 +C86+ C92 Previous Year's Ending =A94 +A95

Supporting Schedules Schedule 1: Economic Forecast Long Term Debt Interest Rate Rate of Inflation (expenses) Schedule 2: Revenues Growth in Selling Prices (%) Cherry Syrup Product #2 Product #3 Product #4 Product #5 Product #6 Product #7 Product #8 Quantity of Sales (units) Cherry Syrup Product #2 Product #3 Product #4 Product #5 Product #6 Product #7 Product #8 Selling Prices (per unit) Cherry Syrup Product #2 Product #3 Product #4 Product #5 Product #6 Product #7 Product #8 Sales Revenue Cherry Syrup Product #2 Product #3 Product #4 Product #5 Product #6 Product #7 Product #8 Total Sales Revenue Input Interest Rate Input Inflation Rate 2008 7.0% 2.0% 2009 7.0% 2.0% 2010 7.0% 2.0% 2011 7.0% 2.0% 2012 7.0% 2.0% 2013 7.0% 2.0% 2014 7.0% 2.0% 2015 7.0% 2.0% 2016 7.0% 2.0% 2017 7.0% 2.0%

Input Percentage Input Percentage Input Percentage Input Percentage Input Percentage Input Percentage Input Percentage Input Percentage Input Amount of Sales Input Amount of Sales Input Amount of Sales Input Amount of Sales Input Amount of Sales Input Amount of Sales Input Amount of Sales Input Amount of Sales Input $ / unit First Year Input $ / unit First Year Input $ / unit First Year Input $ / unit First Year Input $ / unit First Year Input $ / unit First Year Input $ / unit First Year Input $ / unit First Year = A117*A126 = A118*A127 = A119*A128 = A120*A129 = A121*A130 = A122*A131 = A123*A132 = A124*A133 =Sum

2008 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6,000 1 1 1 1 1 1 1 4.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 27,000 27,000

2009 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6,600 1 1 1 1 1 1 1 4.59 30,294 30,294

2010 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7,260 1 1 1 1 1 1 1 4.68 33,990 33,990

2011 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7,986 1 1 1 1 1 1 1 4.78 38,137 38,137

2012 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 8,785 1 1 1 1 1 1 1 4.87 42,789 42,789

2013 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9,663 1 1 1 1 1 1 1 4.97 48,010 48,010

2014 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10,629 1 1 1 1 1 1 1 5.07 53,867 53,867

2015 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11,692 1 1 1 1 1 1 1 5.17 60,439 60,439

2016 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12,862 1 1 1 1 1 1 1 5.27 67,812 67,812

2017 2.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14,148 1 1 1 1 1 1 1 5.38 76,085 76,085

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AgEc 495.3 College of Agriculture & Bioresources, University of Saskatchewan

Saucy Processing

Schedule 3: Cost of Goods Manufactured Direct Materials Cherries Sugar Lemon Juice Corn Syrup Pectin Jars/Box Pallets Expense Item #8 Expense Item #9 Expense Item #10 Total Direct Materials Direct Labour Costs Direct Labour Salary Labourers Wage Labourers Total Labour Salary Workers Salary Labour Total Direct Salary Labour Wage Earning Employees Wage Hours per worker Total Direct Wage Labour Total Direct Labour Benefits for Direct Salary Employees Employment Insurance Canada Pension Plan Workers Compensation Total Benefits for Direct Salary Employees Benefits for Direct Wage Employees Employment Insurance Canada Pension Plan Holiday Pay Workers Compensation Total Benefits for Direct Wage Employees Total Direct Labour & Benefits Variable Overhead Costs Church Rental Processed Storage (Abe's Rent-A-Bay) Company Van Overhead Cost Item #4 Total Variable Overhead Cost Fixed Overhead Costs Depreciation on Equipment Fixed Overhead Cost Item #2 Fixed Overhead Cost Item #3 Property Taxes Capital Cost Allowance Total Fixed Overhead Cost Total Overhead Costs Cost of Goods Manufactured Total Direct Materials Total Direct Labour & Benefits Total Overhead Costs Total Cost of Goods Manufactured Schedule 4: Cost of Goods Sold 2008 Beginning Inventory Cost of Goods Produced Cost of Goods Available for Sale Ending Inventory Cost of Goods Sold Input $ Amount Schedule 3 = A237+ A238 Working Capital = A239- A240 16,805 16,805 6,906 9,899 2009 6,906 18,882 25,788 7,760 18,028 2010 7,760 21,162 28,922 8,697 20,225 2011 8,697 23,726 32,423 9,750 22,672 2012 9,750 26,605 36,356 10,934 25,422 2013 10,934 29,879 40,813 12,279 28,534 2014 12,279 33,542 45,822 13,785 32,037 2015 13,785 37,604 51,388 15,454 35,935 2016 15,454 42,167 57,620 17,329 40,292 2017 17,329 47,291 64,620 19,435 45,185 $/year $/year $/year $/year $/year $/year $/year $/year $/year $/year =Sum 2008 3,000 581 4 646 43 6,000 60 10,334 2009 3,366 652 4 725 48 6,732 67 11,595 64.39 2009 4 4 4 4 2010 3,777 732 5 813 54 7,553 76 13,009 65.68 2010 4 4 2011 4,237 821 6 912 60 8,475 85 14,596 66.99 2011 4 4 2012 4,754 921 6 1,024 67 9,509 95 16,377 68.33 2012 4 4 2013 5,334 1,034 7 1,149 76 10,669 107 18,375 2014 5,985 1,160 8 1,289 85 11,970 120 20,617 2015 6,715 1,302 9 1,446 95 13,431 134 23,132 2016 7,535 1,460 10 1,622 107 15,069 151 25,954 2017 8,454 1,639 11 1,820 120 16,908 169 29,121

2008 Input Number Input Number =Sum

2013 4 4

2014 4 4

2015 4 4

2016 4 4

2017 4 4

Input Year One Salary

-

-

-

-

-

-

-

-

-

-

Input Initial $/hour wage Input hours per =A181*A182*A174 = A178 + A183

$

10.13 $ 50 2,026 2,026

10.33 $ 55 2,273 2,273

10.54 $ 61 2,550 2,550

10.75 $ 67 2,862 2,862

10.97 $ 73 3,211 3,211

11.18 $ 81 3,602 3,602

11.41 $ 89 4,042 4,042

11.64 $ 97 4,535 4,535

11.87 $ 107 5,088 5,088

12.11 118 5,709 5,709

1.87% 4.53% 3.12% =Sum

-

-

-

-

-

-

-

-

-

-

1.87% 4.53% 5.80% 3.12% =Sum =A185+A201+A208

38 92 118 63 310 2,336 2008

43 103 132 71 348 2,621 2009 67 2,020 2,507 4,594

48 116 148 80 391 2,941 2010 76 2,266 2,813 5,154

54 130 166 89 438 3,300 2011 85 2,542 3,156 5,783

60 145 186 100 492 3,703 2012 95 2,853 3,541 6,489

67 163 209 112 552 4,154 2013 107 3,201 3,973 7,280

76 183 234 126 619 4,661 2014 120 3,591 4,458 8,169

85 205 263 141 695 5,230 2015 134 4,029 5,002 9,165

95 231 295 159 780 5,868 2016 151 4,521 5,612 10,283

107 259 331 178 875 6,584 2017 169 5,072 6,296 11,538

Input $ Input $ Input $ Input $ =Sum

60 1,800 2,234 4,094

Input $ Input $ Input $ Input $ Schedule 9 =Sum = A217+ A225

0 0 0 40 40 4,134 2008 10,334 2,336 4,134 16,805

0 0 0 72 72 4,666 2009 11,595 2,621 4,666 18,882

0 0 0 58 58 5,212 2010 13,009 2,941 5,212 21,162

0 0 0 46 46 5,829 2011 14,596 3,300 5,829 23,726

0 0 0 37 37 6,526 2012 16,377 3,703 6,526 26,605

0 0 0 69 70 7,350 2013 18,375 4,154 7,350 29,879

0 0 0 96 96 8,264 2014 20,617 4,661 8,264 33,542

0 0 0 76 76 9,242 2015 23,132 5,230 9,242 37,604

0 0 0 61 61 10,345 2016 25,954 5,868 10,345 42,167

0 0 0 49 49 11,587 2017 29,121 6,584 11,587 47,291

= A169 = A210 = A227 =Sum

38

AgEc 495.3 College of Agriculture & Bioresources, University of Saskatchewan

Saucy Processing

Schedule 5: Administration and Marketing Expenses Salary and Wages Staffing Secretarial (Salaried) Input Number Secretarial (Hourly) Input Number Seasonal Marketers Input Number Manager Input Number Marketer Input Number Total Staff =Sum Total Annual Salaries Secretarial Manager (s) Marketer (s) Total Salaries Hourly Workers (Wage) Secretarial Wage Seasonal Worker Wage Secretarial Hours Per Secretary Hours per Seasonal Worker Total Annual Wages Benefits for Wage Employees Employment Insurance Canada Pension Plan Holiday Pay Workers Compensation Total Benefits for Wage Employees Benefits for Salary Employees Employment Insurance Canada Pension Plan Workers Compensation Total Benefits for Salary Employees

2008 1.0 1.0

2009 1.0 1.0

2010 1.0 1.0

2011 1.0 1.0

2012 1.0 1.0

2013 1.0 1.0

2014 1.0 1.0

2015 1.0 1.0

2016 1.0 1.0

2017 1.0 1.0

Input $ Input $ Input $ =Sum

3,900 3,900

4,376 4,376

4,910 4,910

5,509 5,509

6,181 6,181

6,935 6,935

7,781 7,781

8,730 8,730

9,795 9,795

9,991 9,991

Input Initial $/hour Wage Input Initial $/hour Wage Input hours Input hours =A260*A262*A247+A261*A263*A248

-

-

-

-

-

-

-

-

-

-

1.87% 4.53% 5.80% 3.12% =Sum

-

-

-

-

-

-

-

-

-

-

1.87% 4.53% 3.12% =Sum

73 177 122 371 4,271 2008 300 1,500 1,890 500 116 30 1,350 1,080 6,765

82 198 137 417 4,792 2009 500 2,121 561 130 34 1,515 1,212 6,071

92 222 153 467 5,377 2010 510 2,379 629 145 38 1,699 1,360 6,761

103 250 172 524 6,033 2011 520 2,670 706 163 42 1,907 1,525 7,534

116 280 193 588 6,769 2012 531 2,995 792 183 48 2,139 1,712 8,400

130 314 216 660 7,595 2013 541 3,361 889 205 53 2,400 1,920 9,371

146 352 243 741 8,521 2014 552 3,771 998 230 60 2,693 2,155 10,459

163 395 272 831 9,561 2015 563 4,231 1,119 259 67 3,022 2,418 11,678

183 444 306 932 10,728 2016 574 4,747 1,256 290 75 3,391 2,712 13,045

187 453 312 951 10,942 2017 586 5,326 1,409 325 85 3,804 3,043 14,578

Total Administration & Marketing Salaries, Wages and Benefits Marketing Expenses Banner Web Page Sample Product Donations Western Producer Ad Pamphlets Store Farmer's Market Marketing Expense Item #10 Total Marketing Expense Summary of Administration & Marketing Expenses Administration Salaries & Wages Marketing Expenses Interest on Long Term Debt Total Admin & Marketing Expenses

Input $ Input $ Input $ Input $ Input $ Input $ Input $ Input $ Input $ Input $ =Sum

=A279 =A296 Schedule 8 =Sum

4,271 6,765 0 11,037

4,792 6,071 0 10,864

5,377 6,761 0 12,138

6,033 7,534 0 13,567

6,769 8,400 0 15,169

7,595 9,371 0 16,965

8,521 10,459 0 18,980

9,561 11,678 0 21,239

10,728 13,045 0 23,773

10,942 14,578 0 25,521

39

AgEc 495.3 College of Agriculture & Bioresources, University of Saskatchewan

Saucy Processing

Schedule 6: Capital Budget 2008 Land Buildings and Infrastructure: Class 06 Building Type #1 Building Type #2 Building Type #3 Building Type #4 Infrastructure Type #1 Infrastructure Type #2 Total Class 06 Equipment (Without Motors): Class 08 Steamer Juicer (x2) Class 08 Equipment Item #2 Class 08 Equipment Item #3 Class 08 Equipment Item #4 Class 08 Equipment Item #5 Class 08 Equipment Item #6 Class 08 Equipment Item #7 Class 08 Equipment Item #8 Class 08 Equipment Item #9 Class 08 Equipment Item #10 Total Class 08 Machinery (With Motors): Class 10 Class 10 Machinery Item #1 Class 10 Machinery Item #2 Class 10 Machinery Item #3 Class 10 Machinery Item #4 Class 10 Machinery Item #5 Class 10 Machinery Item #6 Class 10 Machinery Item #7 Class 10 Machinery Item #8 Class 10 Machinery Item #9 Class 10 Machinery Item #10 Class 10 Machinery Item #11 Class 10 Machinery Item #12 Class 10 Machinery Item #13 Total Class 10 Other Equipment <$200: Class 12 Equipment Item #1 Equipment Item #2 Equipment Item #3 Equipment Item #4 Equipment Item #5 Total Class 12 Total Equipment Costs Total Land & Equipment Statement of Working Capital 2008 Accounts Receivable Raw Inventory Inventory in progress Finished Inventory Accounts Payable Total Working Capital Average Days Inventory Raw Inventory Inventory in progress Finished Inventory Total Days Inventory Formula =A169*A362/360 Formula =A233*A364/360 Formula 142 6,906 1,729 5,319 2009 159 7,760 1,940 5,979 2010 178 8,697 2,177 6,699 2011 200 9,750 2,442 7,508 2012 224 10,934 2,740 8,418 2013 252 12,279 3,074 9,457 2014 282 13,785 3,449 10,618 2015 317 15,454 3,870 11,900 2016 356 17,329 4,342 13,342 2017 399 19,435 4,782 15,051 Input $ Cost See CCA Rates Worksheet Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost =Sum See CCA Rates Worksheet Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost =Sum See CCA Rates Worksheet Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost =Sum See CCA Rates Worksheet Input $ Cost Input $ Cost Input $ Cost Input $ Cost Input $ Cost =Sum =A314+A326+A341+A348 =A349+ A306 0 2009 2010 2011 2012 2013 2014 2015 2016 2017

0 400

0 0

0 0

0 0

0 0

0 400

0 0

0 0

0 0

0 0

400

0

0

0

0

400

0

0

0

0

0

0

0

0

0

0

0

0

0

0

400 400

-

-

-

-

400 400

-

-

-

-

Input Number of days Input Number of days Input Number of days

5 0 150 155

5 0 150 155

5 0 150 155

5 0 150 155

5 0 150 155

5 0 150 155

5 0 150 155

5 0 150 155

5 0 150 155

5 0 150 155

Average Days Accounts Receivable and Payable Average Days Receivable Input Number of days Average Days Payable Input Number of days Schedule 7: Financing Budget 2008 Long Term Debt Owner Equity Total Debt & Owner Equity Dividends Paid Dividend Policy Factor Schedule 8: Long Term Debt Payment Period (Years) Beginning Balance Addition Interest Debt Payment Ending Balance Schedule 7 =(A381+A382)*A103 Formula =A381+A382+A383-A384 2008 15 Input $ Input $ =Sum =A95-(A334*A376) Cash-(Working Cap* Factor)

0 30

0 30

0 30

0 30

0 30

0 30

0 30

0 30

0 30

0 30

0 5,800 5,800 5.00

2009 5,979 5,979 (45,239) 8.50

2010 6,699 6,699 (51,404) 9.50

2011 7,508 7,508 (54,598) 9.90

2012 8,418 8,418 (61,888) 10.70

2013 9,857 9,857 (70,097) 11.40

2014 10,618 10,618 (78,956) 12.00

2015 11,900 11,900 (89,371) 12.60

2016 13,342 13,342 (101,910) 13.20

2017 15,051 15,051 (113,642) 13.50

2009 0 0 0 0 0 0 0 0

2010 0 0 0 0

2011 0 0 0 0

2012 0 0 0 0

2013 0 0 0 0

2014 0 0 0 0

2015 0 0 0 0

2016 0 0 0 0

2017 0 0 0 0

40

AgEc 495.3 College of Agriculture & Bioresources, University of Saskatchewan

Saucy Processing

Schedule 9: Capital Cost Allowance Class 06: Buildings and Infrastructure Beginning Balance Additions Disposals Capital Cost Allowance Ending Balance Class 08: Production Equipment Beginning Balance Additions Disposals Capital Cost Allowance Ending Balance Class 10: Production Machinery Beginning Balance Additions Disposals Capital Cost Allowance Ending Balance Class 12: Miscellaneous Equipment Beginning Balance Additions Disposals Capital Cost Allowance Ending Balance Total CCA Expense Schedule 10: Income Tax Income Before Taxes Accumulated Loss Carry forward Loss Carry forward Used Taxable Income Federal Tax @ 21% Small Bus Tax Credit @16% up to $400K Capital Tax @0.15% of CTB over $20M Provincial Tax @5% up to $400,000, 14% Total Taxes Schedule 11: Ratio Analysis Liquidity Current Ratio Debt Structure Ratio Solvency Debt/Asset Ratio Profitability Gross Profit Margin Net Profit Margin Return on Assets Return on Equity Cost of Long Term Debt Financial Efficiency Turnover Ratio Debt Servicing Ratio Cash Flow toTotal Debt Interest Coverage Ratio Debt Carrying Capacity (D/E=.5) Schedule 12: Investment Analysis Required Return on Equity Present Value of Equity Investment Equity Investment Present Value of Equity Investment Present Value of Equity Returns Net Cash Flows to Equity Dividends Salvage Value Total Net Cash Flow to Equity Present Value of Net Cash Flows Total Cash Flows to Equity Net Present Value of Equity Investment Internal Rate of Return on Equity Investment Input % Rate =A44/A56 =A56/A61 ST Income & R.E. Logical Statement Logical Statement Logical Statement 21% 16% 0.2% 5% =Sum 2008 6,065 6,065 1,274 (970) 303 606 2009 1,402 1,402 294 (224) 70 140 2010 1,627 1,627 342 (260) 81 163 2011 1,897 1,897 398 (304) 95 190 2012 2,198 2,198 462 (352) 110 220 2013 2,510 2,510 527 (402) 126 251 2014 2,850 2,850 598 (456) 142 285 2015 3,265 3,265 686 (522) 163 326 2016 3,747 3,747 787 (600) 187 375 2017 5,379 5,379 1,130 (861) 269 538 See CCA Rates Worksheet Input $ Value Schedule 6 Input $ Value Formula =A390+A391-A392-A393 See CCA Rates Worksheet Input $ Value Schedule 6 Input $ Value Formula =A397+A398-A399-A400 See CCA Rates Worksheet Input $ Value Schedule 6 Input $ Value Formula =A404+A405-A406-A407 See CCA Rates Worksheet Input $ Value Schedule 6 Input $ Value Formula =A411+A412-A413-A414 =A393+A400+A407+A414 2008 10% 20% 400 40 360 30% 100% 40 2009 2010 2011 2012 2013 2014 2015 2016 2017 -

360 72 288

288 58 230

230 46 184

184 37 147

147 400 69 478

478 96 382

382 76 306

306 61 245

245 49 196

-

-

-

-

-

-

-

-

-

72

58

46

37

69

96

76

61

49

2008 7.3 100%

2009 10.4 100%

2010 13.1 100%

2011 15.6 100%

2012 17.8 100%

2013 19.8 100%

2014 21.6 100%

2015 23.2 100%

2016 24.7 100%

2017 26.7 100%

=A61/A52

13%

9%

8%

6%

6%

5%

5%

4%

4%

4%

=A19/A16 =A29/A16 =(A29+A24)/A52 =A29/A66 =A24/A61

63% 20% 42% 48% 0%

40% 4% 6% 7% 0%

40% 4% 5% 5% 0%

41% 4% 4% 5% 0%

41% 5% 4% 4% 0%

41% 5% 4% 4% 0%

41% 5% 3% 4% 0%

41% 5% 3% 3% 0%

41% 5% 3% 3% 0%

41% 6% 4% 4% 0%

=A16/A52 =(A24+A84)/A16 =(A27+A24+A203)/A61 =(A27+A24+A203)/A24 =(A66*0.5)-A61

208% 148% 118% 100% 87% 78% 72% 67% 63% 60% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 353% 76% 77% 80% 82% 84% 85% 86% 88% 114% ########## ######### ######### ######### ######### ######### ######### ######### ######### ########## 3,900 7,309 11,154 15,496 20,397 26,120 32,336 39,334 47,220 56,726 2008 20% 2009 2010 2011 2012 2013 2014 2015 2016 2017

Schedule 7

5,800 40,697

5,979 -

6,699 -

7,508 -

8,418 -

9,857 -

10,618 -

11,900 -

13,342 -

15,051 -

ST of Cash Flow ST of Income & R.E. Input $ Value =Sum Calculation (40,697)

5,579 5,579 36,904 5,579 -3,792 17.7%

6,652 6,652

7,500 7,500

8,452 8,452

9,523 9,523

10,747 10,747

12,117 12,117

13,632 13,632

15,334 15,334

18,232 (4,188) 14,044

6,652

7,500

8,452

9,523

10,747

12,117

13,632

15,334

14,044

External Rate of Return on Equity Investment Equity Investment Dividends Salvage Value Total to Equity Investor External Rate of Return on Equity Investment (40,697) 9.8% 103,582 103,582

(40,697)

41

AgEc 495.3 College of Agriculture & Bioresources, University of Saskatchewan


				
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