Problem
You are considering buying a farm. It is 5000Ha. It is expected to produce each year 2500 tonnes of grain which sells for $300/t.net of freight and marketing costs. The crop variable costs are $100/tonne. The farm will also produce and sell 550 steers for $1000/head. The annual variable costs of the steer activity are $150000 The farm overhead costs are $400000 p.a. The salvage value of the land, machinery and stock in year 15 is 100% of the purchase price. You have a 15 year planning horizon. Your required rate of return is 5% p.a. real. Ignoring risk for the exercise, how much would you pay for the total package of farm land, stock and mcachinery. All dollars are real-there is no inflation. If you borrowed $5m over 15 years at 6% interest rate as an amortization loan what is the annuity (equal annual sum repayment, interest and principal).