Diegnau Farms: Justification and Negotiation of Adding Tile to a Rented Farm
Diegnau Farms was quickly approaching the renewal of a farm rental agreement. Its owners, Chad and Melissa Diegnau, wanted to coordinate the renewal with an opportunity to reduce the unpredictability of crop yield and increase profitability during years of excess rain through tile installation, as tile improved drainage. Chad and Melissa collected the necessary investment costs, rental rates, expected yields, and required rates of return for the renewal negotiation. Their task was to determine profitability of various funding and installation options, evaluate additional risks and opportunities, and determine a target plan for funding and length of contract. The critical incident provides a description of the organization and information revealing the nature of the investment costs, profitability, and required rates of return.
In completing this assignment, students should be able to:
1. Apply the methods of cost-volume-profit analysis to determine the break-even volume given a fixed pricing structure.
2. Apply the capital investment nondiscounting model of payback period to compare investment options.
3. Apply the capital investment discounting model of net present value to compare investment options.
4. Identify and evaluate additional risks and opportunity factors that affect the justification of an investment.
5. Analyze the results of multiple capital investment models and identification of additional risks and opportunity factors to make a recommendation that aligns with the investment goals