Create a new workbook in Excel. Please include an input area and an answer area for each problem. You will have an answer for each bullet point. Formatting is up to you. Just make sure it is easy to tell where your answers are, and what equation you used in excel to get the answer.

1. Assume you purchased land for $150,000.

• Excluding any profit, what would you have to sell the land for to earn a 7 percent annual return on your investment after 5 years?
• After 8 years?

2. If a 6.5 percent annual return can be expected:

• How much would a 20-year old person have to put into a retirement fund each month to have $1,000,000 in the fund upon retirement at age 65?
• What would the contribution be if they had started investing at age 25?
• At age 35?

3. You know that you could afford to make a monthly payment of $450 towards a short-term loan of 5 years, but are wanting to know how much in total you could borrow with that level of payment.

• How much could you borrow with an annual interest rate of 8 percent?
• Of 6.5 percent?

4. A producer gets a loan to purchase a new piece of equipment for $250,000.

• What is the annual principal and interest payment for the loan with annual payments over 20 years at a 6 percent interest rate?
• How much (in total) would the producer pay in interest charges over the life of the loan?
• What is the annual principal and interest payment for the loan with annual payments over 15 years at a 6 percent interest rate?
• How much (in total) would the producer pay in interest charges over the life of the loan?
• If the producer paid the equipment off sooner (15 years), how much interest would be saved?

5. Assume you have won the lottery and have the choice of (1) receiving $1,000,000 now or (2) receiving $120,000 each year for 20 years.

• Opportunity cost of capital is 10 percent; what is the future value of the first option?
• Opportunity cost of capital is 10 percent; what is the future value of the second option?
• Which is the better option?
• Opportunity cost of capital is 8 percent; what is the future value of the first option?
• Opportunity cost of capital is 8 percent; what is the future value of the second option?
• Which is the better option?

6. Given the baseline gross receipts (no water restriction scenario) of irrigated cotton production versus the conversion of irrigated acres to dryland scenario, calculate the net present value (NPV) using a discount rate of 2.25% over the 10-year time period.

• What is the NPV of the baseline scenario?
• What is the NPV of the convert to dryland scenario?
• What is the loss in NPV due to conversion to dryland?

Year	Baseline Cash Flow ($)	Convert to Dryland Cash Flow ($)
1	43,841,598	42,745,984
2	41,473,691	40,343,665
3	39,225,605	38,074,361
4	37,095,304	35,931,035
5	35,141,529	34,007,707
6	33,326,061	32,229,290
7	31,604,896	30,543,673
8	29,973,180	28,946,113
9	28,426,293	27,432,091
10	26,959,839	25,997,313

7. Assume a farmer has a choice of purchasing either a subsurface drip irrigation (SDI) system or a low energy precision application (LEPA) center pivot. The SDI system would cost $1200 per acre to install versus $556 per acre for the LEPA system. The estimated life for each system is 20 years. The salvage value at the end of the useful life is 20% of the initial investment. Assume that the discount rate of money is 2.25%.

• Calculate the present value of the salvage value for SDI per acre.
• Sum the system investment with the present value of the salvage to get the total net investment for SDI per acre.
• Calculate the present value of the salvage value for LEPA per acre.
• Sum the system investment with the present value of the salvage to get the total net investment for LEPA per acre.
• Conclude which system would have a higher net investment.
• What are some other things to consider for the investment?