A prospective farm tenant is considering four alternative leasing arrangements: Fixed cash rent - tenant...
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Accounting
A prospective farm tenant is considering four alternative leasing arrangements: Fixed cash rent - tenant receives all gross income and pays all expenses, including $140 per acre cash rent. Flexible cash rent - same as above, except cash rent will be equal to one-third of the actual gross income. 50-50 Crop share rent - tenant receives half the gross income, pays half the input, storage, and drying costs, and provides all the labor and machinery. Custom farming - tenant (custom operator) provides all machinery and labor, receives $90, per acre. Owner pays all other costs. For each alternative calculate the tenant's gross income, total costs and expected profit for an average gross income per acre, and for when gross income falls 20% below average. Which alternative offers the highest profit in the tenant, normally? The lowest? Which alternative offers the most risk to the tenant
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