You are considering the decision to lease or buy some land. To do that, you need to calculate a number of items, including share rent payments, maximum cash rent you could pay, what the value of the land is, the cash flow implications and possibly other items. This assignment provides a progression through these sorts of calculations and decisions.

Part 1. Analyzing Crop Share and Cash Leases

You've got information from the last 3 years of crop production on land that you own and you want to use that to determine what a 50-50 crop share lease would have cost you versus the cash rent price. Use the information in the table below. Assume there is an equal number of corn and soybean acres. Replace each empty cell with a calculation (24 cells).

Item	Year 1	Year 2	Year 3
Corn	Soybeans	Corn	Soybeans	Corn	Soybeans
Average Selling Price ($/bu)	$5.25	$11.75	$5.00	9.50	$5.90	$11.00
Average Yield (bu/acre)	165	50	185	65	150	45
Gross Income for enterprise ($/acre)
Avg. Gross Income for Crops
Landowner Share of Gross Income
Value of Inputs ($/acre)	$295	$135	$295	$135	$295	$135
Average Input Cost ($/acre)
Landowner Share of Input Costs ($/acre)
Net Cost of Share Rent
Cash Rent	$240	$240	$240
Which type of rent was cheaper?

Part 2. Maximum Cash Rent Analysis(5 points)

Next. you want to figure out how much you could afford to pay in cash rent for land that is identical to the land that you already own. To do that, you need to calculate the additional income and additional costs associated with that land. The additional net income represents the maximum amount that you can afford to pay for cash rent. Use the information calculated in Section B, Part 1. Use the average across all three years to complete this. Again, replace each empty cell with a calculation.

Item	Amount ($/acre)
Average gross income
Average input costs
Machinery costs (variable + fixed)	$150
Labor cost (Assume 3 hours per acre at $10/hour)
Total Additional Costs
Additional Net Income

Part 3. Income Capitalization Approach to Valuing Land(4 points)

The additional net income per acre from Section B, Part 2 represents the maximum cash rent but, if you owned the land instead of renting, it would be available to you as income. However, ownership also means that you pay property taxes on the land. So, you need to consider the implications of ownership versus rental. Replace each empty cell with a calculation.

Item	Amount ($/acre)
Additional Net Income (from Section B, Part 2)
Property Tax	$20.00
Additional Net Income from Ownership

Using the formula , we can find the value of the land based on its productive capacity. (V is the value of the land, R is annual net returns, and d is the discount rate. Assume that the discount rate is 4% and calculate the per-acre value of the land in a purchase situation.

Part 4. Financing(25 points)

The bank has pre-approved your loan for this purchase. The terms of the loan include a 20% down payment and the balance borrowed at 6% over 25 years. Replace each empty cell with a calculation.

Item	Amount ($/acre)
Estimated bid price (calculated as V in Section B, Part 3)
Percent to be financed (%)	80%
Total amount to be borrowed
Annual total payment (Amount to be borrowed 0.07823)

The total payment just calculated will be constant over the 25-year life of the loan. However, the amount that goes to interest and principal will change over time. Replace each empty cell with a calculation. (Note: The figures for net income expected are from Section B, Part 3) The cash surplus may be positive or negative.

	Interest Payment	Principal Payment	Principal Remaining	Net Income Expected	Cash Surplus
Amount Borrowed
Year 1
Year 2
Year 3
Year 4

1. If you find a deficit in any given year, how might you obtain cash to make up for that deficit?