You are a commodity farmer in eastern North Dakota. Recently you added 125 acres of traditional corn to your existing soybean and wheat rotation.You have noticed that significant yield increases have occurred with irrigated corn in the region.Rather than just purchasing the irrigation equipment, you decided to collect information on irrigated corn and compare it to traditional corn using a partial budget before you make your decision. You have collected the following information:

The purchase price of irrigation equipment is $110,000 with a salvage value of $20,000 and a useful life of 15 years.

You must take out a loan to pay for the irrigation equipment with an interest rate of 4%.

Additional Insurance must be purchased with the irrigation system, valued at $1,000.

Variable Interest is valued at 4%.

Corn selling price is $3.75/bu.

Standard corn yield is 130 bu/acre, irrigated corn yield is 170 bu/acre.

Variable costs are the following:

Variable Costs Standard Corn ($/acre) Irrigated Corn ($/acre)

Herbicide 18 22

Fertilizer 108 164

Fuel 29 20

Repairs 20 22

Irrigation Power 0 15

Misc. 8 9

Crop Insurance 27 36

Question

a.Using the information provided, generate a partial budget.Make sure to properly title the budget and show your calculations in your spreadsheet.

b.Should you switch to irrigated corn? Please support your answer by explaining your results from the partial budget.

c.Now, you realized that you used the most recent corn price, and it might be better to use a 5 year average. How does your result change if you use a 5 year average corn price of $4.11/bu?