Should a farmer invest in and operate a 55.000 hu grain drying and storage facility? The cost of the facility is $90,000. The economic life is ten years. The salvage value is expected to be $14,000. In a partial budgeting framework, one must compare the added cost of operating the facility each year relative to the savings of eliminating the elevator charges each year. The elevator charge for drying and storage has averaged $0.50 per bushel the past few years, so the first year savings is expected to be $27,500. The farmer expects that the total elevator charge will go up about $50/yr. (Note: look at this like a savings because of the invest you are making you won't have to pay this fee) The operating costs of the new facility are expected to be $0.25/bu., repairs, insurance and taxes are expected to be an additional $700.00 a year. As you new facility gets older the repair costs are expected to increase $100 yearly as can be seen in the cost numbers below. . Also note for the NPV calculations; the real interest rate is assumed to be 4.0%, inflation is expected to be 3.0% annually, and the risk factor is expected to be 1.0%. Discount Rate is 8 %.

The NPV = 2,752.43

Based on the NPV results, explain why the farmer should or should not invest in the facility?