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A farmer is thinking about investing in a center pivot irrigation system to irrigate $120$ acres of land in D awson County. This land is used to produce cotton and is currently a dryland operation. Currently production is approximately $$ bale of cotton per acre. The current operating expenses are $$100$ per acre. With an irrigation system, operating expenses would increase by $$125$ per acre due to electricity, maintenance and additional labor $($Total operating expense $=$ $$225).$ The irrigation system will be used during periods of low precipitation for the growing of cotton and for preparing the ground for breaking. It is estimated that the irrigation will increase yields and thus operating receipts by $$200$ per acre. The cost for drilling a well would be $$9,180($Table $1)$ and the cost for the center pivot irrigation system would be $$33,000.$ The irrigation system would be $$ mile long and would irrigate $120$ acres. This system would run off electricity and would be able to apply any amount of water over any given period. Suppose that the farmer wants to evaluate this investment over a five$-$year period of time. The farmer believes that if he sold the farm in five years, the irrigation system would add $$30,000$ to the sale price. The farmer anticipates that his marginal tax rate over the next six years will be $15\%.$ The IRS will allow the farmer to depreciate the investment $($$$33,000+$ $$9,180)$ using straight$-$line over $15$ years. Assume that the terminal value of this investment is $$30,000$ at the end of five years. The farmer requires a $12\%$ return to capital $($pretax$).$

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