1. Lone Star Agrisolutions Consulting for Sleepy B Ranch Cow/Calf Operation AGEC 489/689 Spring 2008

2. Location: Franklin, TX

3. Constituents Ranch President/CEO - Brad Roberson CONSULTANTS for Lone Star Agrisolutions: Production Advisor - Brandon Grooms Cost Efficiency Manager - Casey Munn Agricultural Economist - Gary Coke Business Analyst - Maria Afonso Financial Analyst - Luke Funderburg

4. Sleepy B Ranch Commercial Brangus Cattle Cow/Calf Ranch Cows wean one calf per year (usually) Calves sold between 600 & 700 pounds Calves sold through a Private Contract to Stocker Operations

5. Start-Up Assumptions 200 Bred Heifers purchased for Brood Cows 5 Bulls purchased 90% Calf Crop of 180 per year 1,500 acres of land owned All machinery owned $50,000 Beginning Cash Balance

6. Start-Up Costs 200 Bred Heifers – $802/ Cow, $160,400/ Total 5 Bulls - $1,800/ Bull, $9,000/ Total Total Start-Up Cost - $169,400 Requesting a Loan for 80% of Start-Up Costs: $135,520

7. Yearly Expenditures Direct Materials - $297/ calf, $53,556/ year  Hay  Range Cubes  Creep Feed  Salt and Meal  Mineral  Textured Sweet Feed  8 Way Vaccination  Vibrio/ Lepto Vaccination

8. Yearly Expenditures Fixed Overhead - $2,023/ Year  LA 200  Penicillin  Equipment Maintenance  Miscellaneous Depreciation - $4,967/ Year  (Heifer & Bull purchase price – Cull Cow & Bull sale price)/ 7 years Disbursements for Overhead - -$2,943/ Year  Overhead Cost – Depreciation = Disbursements for Overhead

9. Yearly Expenditures Direct Labor - $922/ Year  Owner feeds/maintains cattle; Hired Labor only for working cattle bi-annually, fixing the fence, etc. Administrative Costs - $2,825/ Year  Insurance - $1,025/ Year ($5.00/ Head)  Property Taxes - $1,800/ Year ($1.80/ Ac)

10. Total Yearly Expenditures Total Yearly Expenditures = $55,040/ Year  Direct Materials + Disbursements for Overhead + Direct Labor + Administrative Costs = $55,040  $55,040 / 180 Calves = $306/ Calf

11. Historical & Forecasted Sale Price Begin Forecasted Prices

12. Economic Assumptions Condition of the Economy: Input costs increase yearly due to inflation and increase in demand for feed. Forecasted Calf prices drop in 2010 and 2012 U.S. economy is in a recession Credit crunch makes it harder to obtain loans and find investors

13. Baseline Scenario Assumptions: Variable costs and fixed overhead increase 3% per year. Straight-line depreciation used. Administrative Costs are the same every year. Forecasted sale price changes yearly.

14. Shock Scenario Assumptions: 10% drop in prices Selling 170 calves instead of 180 Direct Materials and Fixed Overhead costs increase 9.5% per year Condition of the Economy Worsens: Input costs increase from 3% to 9.5% due to inflation and increase in demand for feed. U.S. economy in a greater recession

15. Choosing the Required Rate of Return 1) R free rate from federalreserve.gov -- current rate for a 5-yr treasury bondfederalreserve.gov 2) Business risk for the cattle industry is huge – the CV for calf prices is.13 3) Since our loan dwindles significantly after the first 3 years, we took our financial risk down to ~1% in the 4th/ 5th year 4) Realistic required rate of return measures between 20-25%.

16. Table of NPV/Net Cash Flows for Baseline and Shock

17. Ratios – Financial Analysis Minimum

18. Ratios – Financial Analysis Maximum

19. Ratios – Financial Analysis Should be Positive

20. Ratios – Financial Analysis The Lower the Better

21. Ratios – Financial Analysis Minimum

22. Sleepy B Ranch Conclusion Ratios steadily improving Average NPV Positive Operation is feasible even in shock scenario (shock scenario is rather extreme)

23. Lone Star Agrisolutions for Sleepy B Ranch Questions?