Question
A prospective farm tenant is considering four alternative leasing arrangements: a. Fixed cash rent - tenant receives all gross income and pays all expenses, including
A prospective farm tenant is considering four alternative leasing arrangements:
a. Fixed cash rent - tenant receives all gross income and pays all expenses, including $140 per acre cash rent.
b. Flexible cash rent - same as above, except cash rent will be equal to one-third of the actual gross income.
c. 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.
d. Custom farming - tenant (custom operator) provides all machinery and labor, receives $100 per acre. Owner pays all other costs.
1. 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.
50-50 Share Cash Rent Cash Ren Rent Flexible Farmin $450 $450 $450 $450 Total gross income per acre Tenant's gross income Tenant's costs: 120 50 25 10 120 50 25 10 Seed, fertilizer, pesticides 60 50 25 50 Labor Drying, storage Rent Total of tenant's costs Profit to tenant Risk Tenant's gross income Cash rent Total of tenant's costs Profit to tene with 20% less
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