Transcript XP Choppers Inc

Rhonda Ehalt
Jeff Prosko
Braden Hudye
Terrance Mckee
 45’ cutting width
 reduced wheel tracks
 increased operating speed
 safer transport
 Improved contouring ability
 Fewer passes
 Reduced inputs
cost of the XP Chopper
•
•
“A
revolution in organic weed control”
Machine Construction
Machine Construction
Weed Bashing
Construction Costs

Complete Machine including all:
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Steel
Hydraulic Components
Mechanical Components
Paint and Decals
Labor
Comes to a total cost of $21,048
Start Up Working Plan (Year 1)
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Engineer develops a working blue print
Research and Development with 45’ model (side by
side plot trials)
Field demos
Attend Trade Shows (new inventions at Farm
Progress)
Goal: to sell 5 machines in year 1
Working Plan (Year 2+)

Once established as a reputable company sales will
continue to increase on a yearly basis
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Attend Saskatoon, Brandon, and Red Deer Trade
Shows in January
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Early Spring will consist of taking and delivering
orders to our dealers
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R and D manager and summer student will manage
side by side plot trials across prairies
Working Plan continued
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Marketing Manager and summer student will be in
charge of taking orders and all public relations
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Marketing Reps will put on field demos across the
prairies
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Marketing Reps will continue attending trade shows
throughout the summer and develop advertisements

Continue developing new and improved models
Site Plan
Operating Expenses
Building Expenses
Costs
Building lease
Taxes
Natural Gas
Power
$24,000
$1,100
$2,600
$1,200
Insurance
Phone
$500
$2,400
$31,800
Total
Operating Expenses continued
Travel Costs
Costs
Truck License
$1,000
Trailer License
$300
Truck Repairs
$2,000
Trailer Repairs
$1,000
Fuel (30,000miles)(15mpg)
$4,500
Hotels (15 nights)
$1,500
Meals (45 meals)
$4,500
Trade show fees (5 shows)
$5,000
Total Operating Costs
$52,500
Organizational Structure
President and
Vice President
Secretary
Administration
Marketing
Manager
R&D
Manager
Summer Student
Marketing Technician
Summer Student
R&D Technician
Human Resource Plan
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2 Share Holders (President and Vice President)
Company Profits split 50-50 between share holders
5 positions
 President (Marketing Manager)
 Vice President (R and D Manager)
 Secretary/Administrator
 2 Summer Students
Human Resource Plan
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President and Vice President are sole investors and
each own 50% of the Company
President will have the responsibilities of Marketing
Vice President will have the responsibilities of
Research and Development
Full time Secretary will be hired to handle
administration and bookkeeping (Accountant will be
hired for tax filing)
Part time research and marketing assistants will be
hired during the busy season (University Summer
Students)
Human Resource Plan
Salary
President (Marketing
Manager)
Vice President
(R & D Manager)
Secretary
Administration
Part-time Marketing
Technician
Part Time R & D
Technician
XP
Unemployment
Insurance
$50,000
$1,700
Canada
Pension
$1,900
Holiday
Pay
$3,000
TOTAL
$50,000
$1,700
$1,900
$3,000
$56,600
$21,600
$734.40
$820.80
$1,296
$24,451
$9,600
$576
$10,176
$9,600
$576
$10,176
Choppers will pay out $158,003 per year in wages
$56,600
The Marketing Mix
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Products and Services – Organic in-crop
weed control system with many advantages
over traditional systems.
Pricing - No direct competition making XP
Choppers a price establisher, will use
premium pricing.
Promotion – More effective weed control,
higher ground speeds, reduced wheel tracks.
Place – Western Canadian organic farmers.
Segmentation, Targeting and Positioning
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Segmentation – 45’ model being built to
service the needs of larger organic farms,
smaller models will be built in the future.
Targeting – Leading edge organic producers
who desire improved weed control.
Positioning – Long term sustainability by
controlling weeds effectively without the use
of chemical.
SWOT Analysis
Internal Strengths and Weaknesses

Human Resources
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Physical Resources
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(Strength) Well educated staff.
(Weakness) Possible conflicts (two equal
partners)
(Strength) Welding shops, location, building.
(Weakness) Quality control issues.
Financial Resources
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(Strength) Low overhead, investors run company
(Weakness) Two-Three year break even period.
SWOT Analysis
External Opportunities and Threats
Opportunities
Increasing number of
organic farms (5%/yr)
Increased consumer
demand for organics.
Premium prices
No direct competition
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Threats
Many variable affecting
producer income.
Possibility of biological
herbicides.
Renewed emphasis on
convention practices.
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Market Analysis
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The Market – 1500 organic farms in western
Canada consisting of approx. 1,500,000 acres as of
2005 (OCPP, 2005)
Competition – Close direct competition consists of
farmers using existing swather tables.
Customers - Organic producers looking for
improved methods of mechanical weed control.
Target Markets – Will start out in western Canada
and eventually move into the United States and
Australia.
Market Analysis (cont’d)
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Product/Service Features - The XP Chopper is
the first machine of its kind, it is designed to bash
the structure of the weed as opposed to cutting the
stem clean, causing the plant to die or re-grow at a
much slower rate.
Opportunity – One of a kind machine entering into
an untapped market.
Sales Forecast
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Total
Projected units
sold
5
30
60
80
91
96
101
106
111
117
797
Projected number of
farms (5% growth)
1500
1575
1654
1737
1824
1915
2011
2112
2218
2329
Percent of
market growth
0.3%
1.9%
3.6%
4.6%
5%
5%
5%
5%
5%
5%
Total market
share
0.3%
2.2%
5.7%
10%
15%
19%
23%
27%
31%
34%
Marketing Strategy

Sales Objectives – to sell 797 units in 10
years capturing 34% of total market share.

Profit Objectives – 125% of the cost per unit.

Channels of Distribution – Year one sell
directly to customers, in year two will
establish a dealer network consisting of
existing equipment dealers.
Marketing Strategy (cont’d)
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Pricing Policy – pricing will be based on the
cost of the machine (25% Markup)
XP Choppers
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Cost to build $ 21,048 x 25 % = $ 5,262 profit
Dealership:

Cost to buy $ 26,310 x 25% = $ 6,578 profit

Machine Retails at $ 32,890
Selling and Advertising
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Attend agricultural tradeshows
Booth with video of machine, brochures,
research, etc.
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Arrange field days/demonstrations
Write press releases and submit to Grainews,
Western producer, Top Crop Manager, etc.
Feature the machine on the prairie farm
report.
Attend organic crop growers conferences
Marketing Plan Budget
TRAVEL EXPENSES
Vehicle repairs, maintenance and license
Trailer repairs, maintenance and license
Fuel
Accommodations (8 shows @ 3 nights)
Meals
Sub Total
$3,000
$1,300
$4,500
$2,400
$1,000
$12,200
Promotion and Development
Trade show entries (8 shows @$1500)
Trade show booth (model, tv/vcr, display)
Video Production
Brochures
Web Page
Newspaper Advertising
Field Demos (6 locations)
Swather fuel and repairs (field demos)
Sub Total
Total Marketing Cost
$12,000
$2,000
$300
$100
$1,000
$5,000
$6,000
$1,400
$27,500
$40,000
Financial Plan
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The initial start up cost is $350,000
$300,000 will come from owner’s equity
The remaining $50,000 will be long term debt
The $50,000 loan will be amortized over 5
years at an average interest rate of 7%
Annual loan payment will be $12,195 for 5
years.
Summary of Financial Results
Year
2006
2007
2008
2009
2,146,35
9
1,726,56
2
419,797
213,133
206,664
2,448,996
6,544
200,121
0
53,822
27,187
223,616
0
277,438
Sales Revenue
131,550
805,086
COGS
137,537
652,983
(5,987)
202,886
(208,872)
152,103
206,265
(54,161)
1,610,17
2
1,283,75
6
326,416
209,681
116,735
0
0
(208,872) (54,161)
0
0
(208,872) (263,034)
0
116,735
0
(146,298)
Gross Margin
Expenses
Net Income Before
Tax
Income Tax
Net Income After Tax
Dividends
End Retained
Earnings
2010
1,981,574
467,422
216,619
250,803
Summary of Financial Results
Year
2011
Sales Revenue
2,583,691
COGS
2,105,726
Gross Margin
Expenses
Net Income Before
Tax
Income Tax
Net Income After Tax
Dividends
End Retained
Earnings
477,965
220,138
257,827
27,948
229,879
153,584
2012
2013
2014
2015
2,712,87
5
2,213,90
7
498,968
224,541
274,428
2,848,51
9
2,318,45
2
530,067
229,031
301,036
2,990,94
5
2,429,05
5
561,890
233,612
328,278
3,140,492
29,748
244,680
173,311
426,102
32,850
268,186
240,720
453,567
41,524
286,754
258,789
481,532
50,282
305,504
272,550
514,487
2,546,422
594,071
238,284
355,786
353,733
Net Present Value (NPV) of Equity Investment
Internal Rate of Return on Equity Investment
External Rate of Return on Equity Investment
310,719
35.7%
24.4%
Summary of Financial Ratios
Liquidity Ratios
Current Ratio
Activity and Operating Ratios
Total Asset Turnover
Inventory Turnover
Average Days Inventory
Leverage Ratios
Debt Ratio
Debt to Equity
Profitability Ratios
Gross Profit Margin
Net Profit Margin
Return on Total Assets
Return on Equity
2006
2008
2010
2012
2014
7.41
2.29
4.46
4.85
4.87
.93
3.89
94
5.72
9.94
37
3.32
11.55
32
3.00
11.68
31
3.06
11.67
31
35.4%
54.8%
45.4%
83.2%
21.8%
27.9%
19.7%
24.6%
20.1%
25.2%
-4.6%
-158.8%
-148%
-229.2%
20.3%
7.2%
41.5%
75.9%
19.1%
9.1%
30.3%
38.7%
18.4%
9.0%
27.1%
33.7%
18.8%
9.6%
29.3%
36.7%
Risk Analysis
Critical Variables
Critical Variables
160
Quantity of Sales
140
120
100
80
60
I.R.R 50%
40
I.R.R. 36% Base
20
I.R.R. 0%
0
1
2
3
4
5
6
Years
7
8
9 10
Breakeven Analysis
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Economic Breakeven
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the percent of markup on the cost of goods
manufactured can be reduced from the current
25% down to a 13% markup before a 0% I.R.R. is
reached
Cash Flow Breakeven

In order for the company to avoid a negative cash
balance, the percent of markup can only drop by
1% from 25 down to 24
Breakeven Analysis

Income Breakeven
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needs to maintain a minimum 20% markup to
achieve a minimum income in order to avoid a
negative return to equity.
Sensitivity Analysis
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Base Case uses the current 25% Markup on the cost
of goods manufactured
Best Case scenario the markup has been raised
from 25% to 45%
Worst Case scenario the markup has been dropped
by 10% down to 15%
Mark Up
Quantity of Sales
Mark Up and Sales
Best Case +20%
73.2 % I.R.R.
43.6 % I.R.R.
85.4% I.R.R.
Base Case
35.7% I.R.R
35.7% I.R.R
35.7% I.R.R.
Worst Case -10%
1.6% I.R.R.
30.0 % I.R.R.
-5.3% I.R.R.
Sensitivity Analysis
90%
80%
70%
I.R.R.
60%
50%
Best +20%
40%
Base
30%
Worst -10%
20%
10%
0%
-10%
Mark Up
Quantity of Sales
Mark Up and
Sales
Summary
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In order for XP Choppers to meet and
maintain their cash flow requirements in the
beginning, the initial sales targets must be
met. A 25% markup over the cost of
production must also be maintained.
XP Choppers can potentially decrease the
cost of production based on volume sales
and manufacturing contracts, lowering our
cost of goods sold.
Summary
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This allows room to increase the markup,
while still achieving the same list price,
thereby increasing the company’s revenue
and profit margins.
If these objectives are met will be a highly
profitable business, delivering an outstanding
internal rate of return of 35.7%, and a 24.4%
external rate of return, proving to be a sound
financial investment.