Ike Irrigator needs your help. Ike Irrigator needs your help. He's considering switching from

dryland corn to irrigated corn. Ike currently farms 1000 acres of dryland corn and would convert

the whole 1000 acres.

Information: Dryland Irrigated

Yield 120 bu. acre. 170 bu. acre

0 bu. acre

Price $4.20/bu. $4.20/bu.

Variable Costs

Fertilizer $100/acre $140/acre

Fuel &Chemicals $80/acre $140/acre

Labor $12/acre $20/acre

All other variable inputs remain unchanged, except, of course, interest on operating capital.

Calculate variable interest at 5% for 6 months.

Information on Irrigation equipment: Original cost $800,000; Salvage value 50,000. Useful life 10

years. Calculate straight-line depreciation. Calculate fixed interest charge at 5% on the average

value of the equipment. There are no taxes or insurance on the equipment.