Week Six Learning Team Paper
FIN/571 Foundations of Corporate Finance
August 4, 2014

Week Six Learning Team Paper
Peggy Parks worked as a building code auditor, saving money into her 401 (k) for retirement. But like every American citizen, her 401 (k) suffered a drastic reduction due to the economic downturn in 2007. Worried about her retirement, Peggy decided to invest in an alpaca business, due to a high return rate, rather than depend only on the financial market. She felt she had more control with a tangible asset, such as alpacas. Alpacas are well loved and can be kept as a pet or for breeding. They have the look of a llama because of their fleece. Many people use the fleece for clothing, such as sweaters and ponchos. It is light in weight, but warm. Alpacas have a demand all over the world, tax savings for those breeding, a deferral on capital gains until the alpaca is sold, tax write off for maintenance and feeding, and they are insurable. According to the video, her investment decision was based on research that proved to be profitable. She obtained a return of $15,000 in the first year for her initial $56,000 investment.
Although Peggy had a return of 27% on her initial investment on the alpaca ranch, she could take advantage of capital strategies to maximize earnings. At first, Peggy could invest part if not all, of her remaining 401(k) balance on the ranch, which could be used to buy more alpacas and breed them. It is more advantage to her to invest on a business that presented a return of 27% on the first year, than to rely on 401(k) return rates, which were around 5.4% from 1998 to 2007, with even lower rates after the economic downturn (Market Riders, 2012).
To improve her business, Peggy can apply the concept of capital improvements. Through this approach, part of the returns acquired on the first would be reinvested in the business. She could,