Kroeker Farms Limited: Expanding Hemp Production
(6 pages of text)
Kroeker Farms Ltd. (Kroeker) had 500 acres of organic hemp in 2016 and planned to expand to 1,100 acres in 2017. Kroeker was one of the largest producers of potatoes in Manitoba, and hemp had become an important part of the crop rotation on its certified organic land. The agronomist responsible for all non-vegetable crops was looking at two equipment investment options because the equipment currently used for hemp was already at its maximum capacity. The first option was to invest in a new technology—a camera cultivator along with a new air seeder, which had to be imported from Europe. The second option was to simply invest in a larger version of the row-cropping equipment that had been used successfully for hemp on the farm. With the next seeding term approaching quickly, in Spring 2017, he needed to make this decision as he knew if he chose the new technology option, shipping from Europe would add additional logistical and timing concerns.
The case is intended for the capital budgeting section of an introductory accounting or finance course at the undergraduate or graduate level. After completion of this case, students will be able to
- use quantitative concepts to perform a trade-off analysis on a future investment, considering profitability, net present value, and payback;
- identify a number of risks throughout the case that could be used to perform sensitivity analysis;
- examine the qualitative side of decision making, particularly in the context of choosing between a new, unproven technology and a larger version of what had already proved successful; and
- weigh the risks of adopting a new technology as well as other pros and cons related to staff, shareholders, and overall business goals.
Agriculture, Forestry, Fishing and Hunting
Canada, Small, 2016
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