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Targeted Capital Base Plan. Bob Cropp Interim Director University of Wisconsin Center for Cooperatives March 30, 2006. A Pure Capital Base Plan. The co-op would decide what percentage of total assets should be member equity.

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targeted capital base plan

Targeted Capital Base Plan

Bob Cropp

Interim Director

University of Wisconsin Center for Cooperatives

March 30, 2006

a pure capital base plan
A Pure Capital Base Plan
  • The co-op would decide what percentage of total assets should be member equity.
  • Then each member contributes their share of equity up-front based on what percent of the total cooperative business volume is their business.
example capital base plan total assets 2 000 000 equity 60
Member A:

Accounts for 5% of the co-op business volume

Up-front equity

$1,000,000

X 5% =

$50,000

Member B:

Accounts for 2% of the co-op business volume

Up-front equity

$1,000,000

X 2% =

$20,000

Example Capital Base Plan: Total assets $2,000,000; equity = 60%

Also, the guideline for board in redeeming equity.

base capital plan not widely used
Base capital plan not widely used.
  • The new generation (value-added) co-ops are practicing base capital plans.

- Purchase marketing rights (shares) in proportion to planned business with co-op.

- Example, $2.00 per bushel for planned bushels corn marketed through the ethanol plant.

- These are enforceable delivery rights

- Shares appreciate/depreciate and are transferable

targeted base capital plan
Targeted Base Capital Plan:
  • Not widely used
  • More applicable for marketing than supply co-ops
  • An equity target is set for each member; for example, $2.00 for each hundredweight of milk to be marketed.
  • Two options; 1) pay $2.00 up-front, or 2) accumulate equity with allocated retained patronage
  • If under-invested,receive 20% of patronage refund in cash and 80% retained as allocated equity.
  • If fully-invested, received 100% of patronage refund in cash
example targeted capital base plan
Member A:

Markets 14,000 Cwts.

$2 X 14,000 = $28,000

Accumulated equity = $12,000

Balance = $16,000

Co-op net margin = $0.30

$0.30 X 14,000 = $4,200

20% cash = $840

Retained allocated = $3,360

Member B:

Markets 12,000 Cwts.

$2 X 12,000 = $24,000

Accumulated equity = $24,000

Balance = $0.00

Co-op net margin = $0.30

$0.30 X 12,000 = $3,600

100% cash = $3,600

Retained allocated = $0.00

Example, targeted capital base plan
summary points
Summary points:
  • Targeted base capital plan won’t be much different than standard equity revolvement unless profits generated allow for reaching equity target in a reasonable time period.---Can’t redeem equity faster than it accumulates.
  • Fully or over-invested members may be interested in selling their excess equity at a discount to under-invested members.