Alternative 1. Rent 500 acres of land for $300 per acre. Added income would be $950 per acre, added operating costs would be $400 per acre plus the $300 cash rent. Complete the budget for this alternative. Calculate net farm income, net cash flow, and change in net worth. Current interest and principal payments would not change.

Alternative 2. Buy 500 acres instead for $1,250,000. Pay 5% interest on the balance owed plus $50,000 principal each year for 25 years. As before, $950 additional income per acre and $400 added operating costs per acre, plus $4,000 additional property taxes total. Budget the results from this option.

How would each alternative affect their profitability? Liquidity?

Profitability (Net Income)	Current	Rent 500 acres	Buy 500 acres
Sales	$150,000
Operating costs	$72,000
Cash rent (500 a. @ $300)	0
Property tax	7,000
Interest (machinery + land loans)	11,000
Depreciation	20,000
Total expenses	$111,000
Net Farm Income	$39,000
Liquidity (Cash Flow)
Total cash inflows (sales)	$150,000
Operating costs	$72,000
Cash rent	0
Property tax	7,000
Interest (machinery + land)	11,000
Principal payments (mach. + land)	20,000
Family living expenses	30,000
Total cash outflows	$140,000
Net Cash Flow	$10,000