1.You have a lump sum payment of $28,000 due to be paid to you in two years from your investment in a local business. The business has done well and the owner has offered to pay you $25,000 now to fulfil the obligation. Assuming you have a nominal discount rate of 7%, should you accept the offer?
2. You assessed your farm business operation and feel that you can commit to setting aside $1,000 per year in a retirement savings instrument that pays a 6% annual interest rate compounded monthly. How much money will you have in the account after 5 years? 10 years? 20 years?
3. You have the opportunity to purchase a property for $250,000. The local bank will finance 60% of your purchase at 6% interest over a 15-year period with payments due annually. What will your payments be? How much interest will be paid and how much principal will be paid after 15 years?
4. You have the opportunity to invest in a range improvement that you estimate will add 0.02 AUMs per acre per year to your grazing capacity in perpetuity. Assuming a current value of $50 per AUM and 3% interest rate, what is the maximum you can afford to pay for this improvement?
5. You are considering undertaking a land improvement practice that will cost you $120 per acre to establish and an additional $8 per acre to maintain over the next 10 years. Assuming a real discount rate of 4%, what is the present value of the total costs per acre associated with the adoption of this improvement practice?
6. Consider the land improvement practice described in Question 5. What is the net present value of implementing the practice if you expect it to increase revenue returns by $20 per acre starting in Year 2 and continuing for 12 years?
7. A large cow barn will cost $150,000 to build today and you figure it will add $18,000 per year to your after-tax cash flows for the next ten years. If the salvage value of the building is 50% after ten years and the cost of capital is 7%, what is the NPV of this investment? What is the IRR of the investment?
8. Calculate the payback period for a combine purchased for $250,000 if it adds an estimated $40,000 to your net cash flows in harvesting expense savings for the next 4 years, $30,000 per year for years 5 through 8, and has a salvage value of $20,000 at the end of year 8.