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<blockquote data-quote="MF135" data-source="post: 762400" data-attributes="member: 14057"><p>You are exposing yourself to substantial risk over those additionaly 5.5 months. I hope your required return is large enough to not only compensate the financial risk, but the non-quantifiable risk such as death/ disease and shrink in general. </p><p></p><p>This valuation doesn't take into account the the change of purchasing power as a result of inflation. It only determines a discount rate that should be applied to provide a means to compare cash flows at different times on a meaningful "like to like" basis. </p><p></p><p>Imagine if you could choose between receiving $100 today and $100 in one year, the rational decision is to cash the $100 today.<em>Even though lurker would argue "a dollar is a dollar" :roll: </em> If the money is to be received in one year and assuming the return you could have received if you invested the money today yourself at 5%, you would have to be offered at least $105 in one year so that two options are equivalent (either receiving $100 today or receiving $105 in one year). This is because if you cash $100 today and deposit in an account receiving 5%, you will have $105 in one year.</p><p></p><p>Now that we have a basic example, surely you can see how this applies to discounting the sum received for finished holsteins at 13 months, compared to the sum received at 7.5 months, so that you can accurately evaluate the two alternatives. The value of the 13 month investment must be discounted by at least the risk-free rate (though cattle require a far higher premium) so that you can compare cash flows.</p><p></p><p>Once any cross is stabilized, it becomes a "pure" breed.</p></blockquote><p></p>
[QUOTE="MF135, post: 762400, member: 14057"] You are exposing yourself to substantial risk over those additionaly 5.5 months. I hope your required return is large enough to not only compensate the financial risk, but the non-quantifiable risk such as death/ disease and shrink in general. This valuation doesn't take into account the the change of purchasing power as a result of inflation. It only determines a discount rate that should be applied to provide a means to compare cash flows at different times on a meaningful "like to like" basis. Imagine if you could choose between receiving $100 today and $100 in one year, the rational decision is to cash the $100 today.[i]Even though lurker would argue "a dollar is a dollar" :roll: [/i] If the money is to be received in one year and assuming the return you could have received if you invested the money today yourself at 5%, you would have to be offered at least $105 in one year so that two options are equivalent (either receiving $100 today or receiving $105 in one year). This is because if you cash $100 today and deposit in an account receiving 5%, you will have $105 in one year. Now that we have a basic example, surely you can see how this applies to discounting the sum received for finished holsteins at 13 months, compared to the sum received at 7.5 months, so that you can accurately evaluate the two alternatives. The value of the 13 month investment must be discounted by at least the risk-free rate (though cattle require a far higher premium) so that you can compare cash flows. Once any cross is stabilized, it becomes a "pure" breed. [/QUOTE]
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