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Below is a whole farm budget for Brenda and Matt for their current farming situation. However, they would like to expand their operation by adding 250 acres that Brenda's grandmother owns. Alternative 1. They could rent the land for $90 per acre. Added sales would be $380 per acre, added operating costs would be $250 per acre in regular operating costs. Complete the budget for this alternative. Calculate their net farm income, net cash flow, and change in net worth if they did this. Their current interest and principal payments would not change. Alternative 2. They could buy the 250 acres instead. Granny will sell it to them on contract for $450,000. They would have to pay her 4% interest on the full balance owed plus $18,000 principal each year. As before, they would have $380 additional sales per acre and $250 added operating costs, plus $3,000 additional property taxes. Budget the results from this option. (Change in net worth is found by taking Net Farm Income and subtracting family living expenses & taxes.) What would you recommend they do? Family living expenses are the same in all options. Profitability Rent 250 acres Sales $290,000 Buy 250 acres $200.000 o Operating costs Cash rent Property taxes Interest Depreciation Total expenses Net Farm Income ELII 5,000 15,000 16,000 $236,000 S54.000 Liquidity Sales $290,000 Operating costs Cash rent Property taxes Interest Principal payments Family living expense & taxes Total cash outflows Net Cash Flow $200,000 0 5,000 15,000 30,000 40.000 $290,000 SO Change in net worth $14,000

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