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Your uncle owns 500 acres of prime farm land in central lowa. He represents the fourth generation of farmers in his family on this property.
Your uncle owns 500 acres of prime farm land in central lowa. He represents the fourth generation of farmers in his family on this property. For many decades, the farm yielded profitable crops of corn and soybeans. But over the past two years, unusual weather and erratic crop and fertilizer prices have generated substantial losses. The Farmers' Almanac for 2022 is forecasting ideal weather for growing crops in lowa and so your uncle is confident that he will be able to raise a bumper crop this year. However, your uncle has expressed concerned that if all farmers have high yields, it will drive down crop prices. Profit margins may be further squeezed by stubbornly high fertilizer prices caused by chronic supply chain issues. Your uncle has heard that one of his neighbors has decided its time to sell his 500 acres and retire. He thinks that with a bigger farm he may be able to gain a bit of negotiating leverage when selling his crops and buying fertilizer. Your uncle has saved up enough money to pay 50% of the cost of his neighbor's land, but he will have to borrow the rest. He knows that you are a business major in college and asks if you can help him run some numbers to see if it makes sense to double the size of his farm. How would you approach this project for your uncle? What information would you need to complete your analysis? Who might you consult with for advice and perspective? What do think are the biggest challenges and risks for your uncle if he buys the additional land? What do you think will be his biggest challenges and risks if he chooses not to go through with the purchase
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