A farmer does a quick FBA and finds the following (comparable farms in bold)
Interest expense ratio =.03 (.05)
Operating expense ratio =.55 (.57)
Depreciation Expense ratio =.00 (.03)
Price received for market livestock (cwt) = $103 ($100)
Current Ratio = 4.3 (1.7)
Working capital = $650,000 ($200,000)
You are hired to work with the producer above. The producer has always believed in large cash reserves. Assume the operator has a large real estate loan ($5,000,000 or more), with over 10 years remaining. If the operator made a one time debt payment of $450,000, and interest rates are currently 5%, how much would profits be improved each year?