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Corporate Finance: Stable Money Makers - Essay Example

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The Alpacas provides returns to their owners in a variety of ways. First, an owner of Alpacas can simply rear and breed them for selling as his/her core business…
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Corporate Finance: Stable Money Makers
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Stable Money Makers Grade (May 14, Corporate Finance: Stable Money Makers The capital investment thatcould help Peggy with her Alpaca business is investing in fleece processing machinery. The Alpacas provides returns to their owners in a variety of ways. First, an owner of Alpacas can simply rear and breed them for selling as his/her core business. Secondly, the owner of Alpacas can rear them for the purpose of shearing their raw fleece and selling it into the fashion industry market, where the commodity is in high demand and earns premium-rate profit margins (Sugarloaf Alpaca Company, 2015). Nevertheless, there is an even more advantageous model of earning even higher profit margins. Rather than selling the raw fleece that has just been sheared directly from the Alpacas, the product can increase its value significantly, if it is sold after undergoing further processing stages to become either an intermediate or a finished product (Sugarloaf Alpaca Company, 2015). For example, other than selling raw fleece, its value can be increased through washing and carding, so that it can be sold as washed and carded fiber, which attracts a much higher price than the raw fleece (Sugarloaf Alpaca Company, 2015). Further, the owner of Alpacas can take the processing to a further stage where he/she can produce yarns and with some more investment, even finished products. The more advanced the processing stage at which the Alpacas owner decides to sell his/her products, the higher and more lucrative the profit margins become (Sugarloaf Alpaca Company, 2015).
In this respect, Peggy can make a capital investment through purchasing the appropriate machinery that are used in the washing, carding and even spinning the Alpacas fleece into yarns. This way, Peggy will be sure that she does not sell her fleece product as a raw product, which even though to attracts a premium-rated profit margin, may not be as lucrative as the profit margins earned by the further processed fleece products such as the washed and carded fiber or the fleece yarns (Sugarloaf Alpaca Company, 2015). The returns earned by the Alpacas owner depends on the model of the fleece sales. There are few processors of the Alpacas fleece products in the market globally, since most of the fleece is sold as a raw product to the cottage industry involved in hand spinning, weaving and knitting (Sugarloaf Alpaca Company, 2015). This simply means that investing in the fleece processing machinery would make Peggy one of the few operators in the industry who processes the raw products into either intermediate or finished products, while earning her the lucrative profit margins.
Additionally, the capital investment in Alpacas fleece processing machinery means that Peggy has the opportunity of diversifying her business from that of a purely Alpacas owner and breeder, to an Alpacas products producer. This means that Peggy may not only be involved in the processing of her own raw fleece products, but also that she may start purchasing the raw fleece products from other Alpacas farmers, and processing it either into the washed and carded fiber or the yarns, and then selling them to the fashion industry. Thus, the diversification through the capital investment will not only see Peggy earn higher and lucrative margins, but also enable her to increase the chances of remaining in the business for the long-haul.
References
Sugarloaf Alpaca Company. (2015). Financial Aspects and Business Opportunities of Alpaca Ownership. Available at: http://www.sugarloafalpacas.com/financial.shtml Read More
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