Q1. You have decide to plan alfalfa this fall. Upon hearing of your plans, a neighbor suggested you plant an grow organic alfalfa. He said there is a dairy nearby that will buy all of the organic alfalfa it can get, as it produces organic milk. In fact, as the current price of alfalfa hay is $150/ton, the dairy is paying $225 for certified organic hay. However, a field is not certified organic until after three years of certified organic farming. It will cost you S625 in establishment costs this year for conventional alfalfa, whereas due to decreased reliance on synthetic fertilizer and herbicides, it will only cost $530 to establish a field of organic alfalfa. Due to fall establishment, you don't expect to get a crop this year (YO), but expect to be able to harvest 6 tons/year for the next four years. Due to the restrictions on fertilizer applications, a field of organic alfalfa will only yield 4.75 tons annually. Likewise, while conventional alfalfa cost $675/year in field operations, organic alfalfa only costs $600 annually (due mainly to decreased chemical and harvest costs). Assume you have an effective discount rate of 7%. You expect each stand to last 4 years. (12 pts total) A. Calculate the net returns for each system for each year (YO - Y4). Assume you establish the crop in Year 0 and you harvest a crop in years 1-4. Notice that your hay crop cannot be marketed as organic until year 4. (From in-class activity) (4 pts) B. Calculate the NPV of each alternative. (4 pts) C. Given this information, should you establish conventional or organic alfalfa? (2 pts) D. Now assume it is determined that you can also harvest a crop in year 5 with the same expected yields. Which option should you choose? (2 pts) Q2. You are considering installing a solar pump to increase available AUMS by improving livestock grazing distribution. Currently, you value 1 AUM at $18. The cost to install and set up the well and associated drinkers is estimated at $19,500. You expect the project to last 25 years. The salvage value for the scrap metal is estimated at $2,500. You estimate annual maintenance cost be $325. Establishing the new water locations should increase total available AUM's by 120 per year. Expect a discount rate of 3%. A. Calculate the annual net return for each year of the project. (From in-class activity) (3 pts)