ABM 130 Homework 9 December 1, 2017 Due Wednesday, December 6, 2017, answer on separate sheet of paper and attach the hand done worksheet and the two printouts of the spread sheet calculations. The investment question is? Should a farmer invest in and operate a 60,000 bushel grain drying and storage facility? The cost of the facility is $100,000. The economic life is about ten years. The salvage value is expected to be about $15,000. In a partial budgeting framework, one must compare the added cost per year, to the savings of eliminating the elevator charges each year. The elevator charge for drying and storage has averaged $0.49 per bushel the past few years, so the first year savings is expected to be $29400. The farmer expects that the total elevator charge will go up about $45/yr. The operating costs of the new facility are expected to be $0.25/bu, and the repairs, insurance and taxes are expected to be an additional $750.00 a year. As the facility gets older the repair costs are expected to increase yearly as can be seen in the cost numbers below. While I have given you the costs and savings by year below, you should figure out how they were derived from the above numbers. The real interest rate is assumed to be 3%, inflation is expected to be 2% annually, and the risk factor is expected to be 1%. Savings Costs Year 1 29400 15750 Year 2 29445 15840 Year 3 29490 15930 Year 4 29535 16020 Year 5 29580 16110 Year 6 29625 16200 Year 7 29670 16290 Year 8 29715 16380 Year 9 29760 16470 Year 10 29805 16560