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 Title Page
 Abstract
 Table of Contents
 List of tables
 Situation
 Grove price and return on...
 Paying the mortgage
 Alternative investment analysis...
 Points to remember
 Reference






Group Title: Economic information report - University of Florida. Agricultural Experiment Stations ; no. 81
Title: A method for determining how much to pay for a citrus grove based upon its fruit production potential
CITATION PAGE IMAGE ZOOMABLE PAGE TEXT
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00027354/00001
 Material Information
Title: A method for determining how much to pay for a citrus grove based upon its fruit production potential
Series Title: Economic information report
Physical Description: i, 13 p. : ; 28 cm.
Language: English
Creator: Abbitt, Ben, 1940-
Otte, John A
Muraro, R. P
Publisher: Food and Resource Economics Dept., University of Florida
Place of Publication: Gainesville Fla
Publication Date: 1977
 Subjects
Subject: Citrus fruit industry -- Florida   ( lcsh )
Citrus fruit industry -- Cost of operation -- Florida   ( lcsh )
Farms -- Valuation -- Florida   ( lcsh )
Citrus -- Yield   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Bibliography: p. 13.
Statement of Responsibility: Ben Abbitt, John A. Otte, R.P. Muraro.
General Note: Cover title.
General Note: "December 1977."
Funding: Economic information report (Gainesville, Fla.)
 Record Information
Bibliographic ID: UF00027354
Volume ID: VID00001
Source Institution: Marston Science Library, George A. Smathers Libraries, University of Florida
Holding Location: Florida Agricultural Experiment Station, Florida Cooperative Extension Service, Florida Department of Agriculture and Consumer Services, and the Engineering and Industrial Experiment Station; Institute for Food and Agricultural Services (IFAS), University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 002198778
oclc - 21028315
notis - ALD8657

Table of Contents
    Title Page
        Title Page
    Abstract
        Page i
    Table of Contents
        Page ii
    List of tables
        Page ii
    Situation
        Page 1
    Grove price and return on investment
        Page 1
        Return to land and trees
            Page 2
        The need for long-run projections
            Page 2
            Page 3
            Page 4
            Page 5
            Page 6
    Paying the mortgage
        Page 7
        Can the grove pay its own mortgage?
            Page 7
            Page 8
            Page 9
        How much can you borrow on returns from both groves?
            Page 10
    Alternative investment analysis methods
        Page 11
    Points to remember
        Page 12
    Reference
        Page 13
Full Text
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:'..:L/ Economic InformaJtion

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Food and Resource Economics Department
Agricultural Experiment Stations and
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Institute of Food and Agricultural Sciences
University of Florida, Gainesville 32611


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ABSTRACT


Uncertain weather, fluctuating yields, and
subsequent unstable prices lead to fluctuating annual
income. Decreasing annual incomes and alternative
investment opportunities contribute to producing acreage
being placed in the open land market. The following
information can help you determine how much you can pay
for a grove based upon its fruit production potential.

Key words: costs, returns, budgeting, rate of
return, repayment capacity.











TABLE OF CONTENTS

Page

SITUATION. . .. .. . .. 1

GROVE PRICE AND RETURN ON INVESTMENT .. ... . 1
Return to Land and Trees. . ... ... . 2
The Need for Long-Run Projections.. .... 2

PAYI:G THE :0E1TGAGE.. 1............ ..... 7
Can the Grove Pay Its Own Mortgage? ........ 7.
How Much Can You Borrow on Returns from Both Groves?. 10

ALTirNATIVE INVESTMENT ANALYSIS METHODS. . .. 11

POINTS TO REMEMBER ...... ..... .. ...12

........ ........... ............. .. 13,





LIST OF TABLES

Table

1 Estimated annual per acre costs and returns for
a 20-year-old mature, irrigated, round orange
grove on rough lemon rootstock producing citrus
for processing in central Florida, 1976-,77 3

2 Summaiary of comparative citrus average on-tree
prices per box from 1973 thru 1977 .. .. 5

3 Summary of comparative interior citrus production
costs per acre from 1973 thru 1977 .. ... 5

4 The maximum amount to pay for a citrus grove
given net return per acre and percent return on
investment . . . . .. 6

5 Debt which can be supported per $1,000.00 annual
repayment capacity . . . 9











TABLE OF CONTENTS

Page

SITUATION. . .. .. . .. 1

GROVE PRICE AND RETURN ON INVESTMENT .. ... . 1
Return to Land and Trees. . ... ... . 2
The Need for Long-Run Projections.. .... 2

PAYI:G THE :0E1TGAGE.. 1............ ..... 7
Can the Grove Pay Its Own Mortgage? ........ 7.
How Much Can You Borrow on Returns from Both Groves?. 10

ALTirNATIVE INVESTMENT ANALYSIS METHODS. . .. 11

POINTS TO REMEMBER ...... ..... .. ...12

........ ........... ............. .. 13,





LIST OF TABLES

Table

1 Estimated annual per acre costs and returns for
a 20-year-old mature, irrigated, round orange
grove on rough lemon rootstock producing citrus
for processing in central Florida, 1976-,77 3

2 Summaiary of comparative citrus average on-tree
prices per box from 1973 thru 1977 .. .. 5

3 Summary of comparative interior citrus production
costs per acre from 1973 thru 1977 .. ... 5

4 The maximum amount to pay for a citrus grove
given net return per acre and percent return on
investment . . . . .. 6

5 Debt which can be supported per $1,000.00 annual
repayment capacity . . . 9









A METHOD FOR DETL'II ING HOW ,UCHI TO PAY FOR
A Cli ;s GROVE BASED UPON ITS FRUIT P 1r,'iI'CTO POTENTIALL

Ben Abbitt, John Otte;, and ,u)n 'uri'c..o

SITUATION

You .are an established citrus grower with a reliable market

for your fruit. A neighboring 200-acre grove is placed on the

market. Your equipment will operate both groves. T.:'o questions

arise.. First, how much can you pay for the grove and.achieve

your desired rate of return? Second, how much can you pay. for

the rc-. e lThrsed on your capability to pay the mortgt,;c


GROVE PRICE A.-D Ei URN ON JiiVrTri?

Fruit. sales must cover cash unper-l:tin: expenses, i:-:ed

grove ;-'osi, Lmlaat,.iement, and a return (income) to capital

invested in land and trees. You can estimate an annual dollar

return to land and trees by budgeting your expected costs and

returns. Dividing this annual return to land and trees by your

desired rate of return on investment gives the maximum price you-

can .-y and.still realize your drcs" red return. Paying a lhiiger

price .will decrease your rate of return, while a lower price

will.increase your return.rate. Reliability of price estimates

depends upon how accurately you can project annual return to

land and trees for the future.



BEN ABBITT and JOHN OTTE, Area Economists, Food and Resource
Economics Department, University of Florida, ARFEC Lake Al.fr'ed and
A'.EC Bradenton, respectively, :' F, HUEAIO, Farm ,ana cement
Extension Agent, Polk County, Bartow.









A METHOD FOR DETL'II ING HOW ,UCHI TO PAY FOR
A Cli ;s GROVE BASED UPON ITS FRUIT P 1r,'iI'CTO POTENTIALL

Ben Abbitt, John Otte;, and ,u)n 'uri'c..o

SITUATION

You .are an established citrus grower with a reliable market

for your fruit. A neighboring 200-acre grove is placed on the

market. Your equipment will operate both groves. T.:'o questions

arise.. First, how much can you pay for the grove and.achieve

your desired rate of return? Second, how much can you pay. for

the rc-. e lThrsed on your capability to pay the mortgt,;c


GROVE PRICE A.-D Ei URN ON JiiVrTri?

Fruit. sales must cover cash unper-l:tin: expenses, i:-:ed

grove ;-'osi, Lmlaat,.iement, and a return (income) to capital

invested in land and trees. You can estimate an annual dollar

return to land and trees by budgeting your expected costs and

returns. Dividing this annual return to land and trees by your

desired rate of return on investment gives the maximum price you-

can .-y and.still realize your drcs" red return. Paying a lhiiger

price .will decrease your rate of return, while a lower price

will.increase your return.rate. Reliability of price estimates

depends upon how accurately you can project annual return to

land and trees for the future.



BEN ABBITT and JOHN OTTE, Area Economists, Food and Resource
Economics Department, University of Florida, ARFEC Lake Al.fr'ed and
A'.EC Bradenton, respectively, :' F, HUEAIO, Farm ,ana cement
Extension Agent, Polk County, Bartow.







Return to Land and Trees

Determining annual return to land and trees requires

placing accurate costs (expenses) on all inputs of production.

Total revenue must be based on reasonable, expected prices and

yields. Subtracting total expenses from total revenue gives

return to land and trees [1]. Grove records' are your best

information source. Your County Extension Office, the Florida

Crop and Livestock Reporting Service, Florida Citrus Mutual,

and other similar organizations can provide cost and return

information on the type acreage you are considering.

Budgeted costs and returns for processed fruit-grown on

the ridge are shown in Table 1. Estimated per acre return to

land and trees in the 1976-77 growing season was slightly over

$286. Assume that you desire a 9.5% rate of return for your

money and risks. Dividing $286 by 0.095 gives a per acre

value of $3,011. At any price over $3,011 you would not re -

your 9.5% desired return.


The Need for Long-Run Projections

The grove you buy will have a life of many years. Your

task is to project yearly returns into the future. Grove

records can help. However, basing expected annual return to

land and trees on one year's records is risky business. The

market is unstable and the weather uncertain. For example,

the 1977 January freeze caused large fluctuations in fruit

prices and subsequent returns to land and trees. Records are

history. Their use should be seasoned with common sense,

experience, and judgment of the effects that changes in

technology, inflation, and external factors have on production.







Return to Land and Trees

Determining annual return to land and trees requires

placing accurate costs (expenses) on all inputs of production.

Total revenue must be based on reasonable, expected prices and

yields. Subtracting total expenses from total revenue gives

return to land and trees [1]. Grove records' are your best

information source. Your County Extension Office, the Florida

Crop and Livestock Reporting Service, Florida Citrus Mutual,

and other similar organizations can provide cost and return

information on the type acreage you are considering.

Budgeted costs and returns for processed fruit-grown on

the ridge are shown in Table 1. Estimated per acre return to

land and trees in the 1976-77 growing season was slightly over

$286. Assume that you desire a 9.5% rate of return for your

money and risks. Dividing $286 by 0.095 gives a per acre

value of $3,011. At any price over $3,011 you would not re -

your 9.5% desired return.


The Need for Long-Run Projections

The grove you buy will have a life of many years. Your

task is to project yearly returns into the future. Grove

records can help. However, basing expected annual return to

land and trees on one year's records is risky business. The

market is unstable and the weather uncertain. For example,

the 1977 January freeze caused large fluctuations in fruit

prices and subsequent returns to land and trees. Records are

history. Their use should be seasoned with common sense,

experience, and judgment of the effects that changes in

technology, inflation, and external factors have on production.




Table .1 .---~Ft im:iit r annual per acr costs iarnd returns for a ''0-year-olid maJure, irrigated,
around uci'le grove on rough Iciiimn i'ootstock producing citrus for processing in
central Florida, 1976-77 [310/


Item Description
I. Revenue 333 boxes @ $1.90 (on tree)
70 trees/acre


II. Expenses
Spray program
Fertilizer
Material
Application
Dolomite
Material
Application
Weed control
Material
Application
Discing
Chopping
Pruning (maintenance)
Topping
Hedging
Chopping brush
Irrigation
Tree replacement and care
Pull trees and remove
Prepare site, plant
and ring
Water
Fertilizer
Bank and unbank
Management

III. Total specified costs

IV. Return to land and trees


Three spray applications

16-0-16, 832 Ibs.
2 @ $3.34

1/3 ton @ $11.88
1 ton every third year

Krovar II, 2 lbs./treated acre

Twice/year
Twice/year

($125/hr. z 8.5 acre/hr.) 3 years
($45.64/hr. i 4 acre/hr.) 3 years
Custom rate
13.2 inches/year


1.4 Trees/acre

(Includes trees)
(Avg. 14 waterings)
(Includes application)

5% of gross sales


$42.57
6.68

$ 3.96
1.13

$10.56
3.41


$10.14

8.65
11.90
5.00
3.80


Amount
$632.70


$ 76.73


49.25


5.09


13.97
8.12
9.16

4.90
3.80
4.58
99.46


$ 39.49
31.64

.$346.19

$286.51


b/Includes $73.00


a/Based on custom rates. Costs should be adjusted to fit the individual grove situation.


_________1___1_______1__1___1 ____ __


~______I__ C______I______III____~---___








Using cost and return information for several seasons

provides more representative return expectations. Five-year

average price and cost figures for fruit grown-on the ridge

are given in Tables 2 and 3. The example grove offered for

sale is 200 irrigated acres of late season (Valencia) oranges.

Av-erge yield of processing fruit for similar groves for the

last five years has been approximately 333 boxes (Table 1).

Multiplying yield per acre by the five-year average price per

box, $1.87 (Table 2), gives you a gross return of $623/acre

or $124,600 for 200 acres.

Five-year average per acre production costs for irrigated

processed fruit-were approximately $327 (T;-:ble 3). Gross

return ($..'"2 less costs ($327) gives you a net return of

$296S/acre or $59,2,00 for 200 acres. If your desired rateoof

return is 9.57, dividing net return per acre ($293) by 0.095,

your desired rate of return, gives a value of $3,116. At any

price over $3,116/acre, you would not receive your 9,5% desired

return.

Suppose the 200-acre block was irrigated, white seedless

grapefruit sold by all methods (packinghouse eliminations are

shipped to the processor). By following the above procedure,

with a $1.49/box price, a yield of 433 boxes/acre, a $366/acre

production cost, and a 9.5% desired return on investment gives

a per acre value of $2,937.

Table 4 provides some selected r.r~:iiinul prices to pay with

varying net return per acre and percentage return on invtstent.

For example, dividing $100 net return per acre'by a desired 5%

rate of return on investment gives $2,000. You can pay up to









Table 2.--Summary of comparative citrus average on-tree prices per box from
1973 thru 1977 [2]

Fruit type 1973 1974 1975 1976 .1977 5-year average


Early and midseason oranges
Processed $1.40 $1.32 $1.40 $1.80 $1.20 $1.42
Fresh 1.83 2.28 2.15 2.35 3.93 2.51
All methods 1.43 1.38 1.46 1.84 1.21 1.46

Lote (Valencia) oranges
.rocessed 1.70 1.57 1.80 2.40 1.90 1.87
Fresh 1.88 1.88 2.05 2.50 3.95 2.45
1il methods 1.71 1.59 1.82 2.41 2.11 1.93

W-ete seedless grapefruit
-rocessed 1.52 1.14 .82 .57 .65 .94
Fresh 2.85 2.20 2.55 2.08 2.60 2.46
All methods 2.06 1.58 1.55 1.17 1.07 1.49






Table 3.--Summary of comparative interior citrus production costs per acre from
1973 thru 1977_/

Fruit type 1973 1974 1975 1976 1977 5-year average

Non-irrigated
Processed fruit $183.24 $226.63 $261.55 $250.84 $267.77 $238.01

Irri ated
Processed fruit 246.02 311.38 357.60 350.23 368.49 326.74

Nco-irrigated
,esh fruit 215.98 261.20 302.63 296.33 309.65 277.16

Irricated
Frrsh fruit 278.76 345.95 398.68 395.72 410.37 365.90

a/ oe; not include ad valorem taxes or interest on investment. Does include a
management charge. Based on custom rates. Costs should be adjusted to fit
the individual grove situation.













Table 4.--The maximum amount to pay for a citrus grove given net
return per acre and percent return on investment

% Return
on __Net return per acre

4% $2,500 $3,750 $5,000 $6,250 $7,500 $8,750 $10,000
5% 2,000Z 3,000 4,000 5,000 6,000 7,000 8,000
% 1,667 2,503 3,333 4,167 5,000 5,833 6,657
7% 1,429 2,143 2,857 3,571 4,286 5,000 5,714
1."53 1,875 2,500 3,125. 3,750 4,375' 5,000
9% 1,111 1,667 2,222 2,778 3,333 3,889 4,444
15 1,C 1,5001 2,000 2, *J. 3,000 3,500 4,000
11% 909 1,364 1,818 2,273 2,727 3,182 3,636
12% 833 1,250 1,667 2, 0 23 2,500 2,917 3,333
13% 769 1,154 1,538 1,923 2,308 2,692 3,077
714 1,071 1 ,'29 1,786 2,143 2,500 2,857
15% 667 1,000 1,333 1,667 2,000 2,333 2,667
16% -625 938 1,250 1,563 1,875 2,180 2,500
17% 53 882 1,176 1,471 1,765 2,059 2,353

Z/Example in text, page 4.







$2,000 per acre for the grove before your return on investment

drops below 5%. These prices provide some guidelines on how

much you should pay for a producing citrus' grove and still

-maintain your desired rate of return.

The land prices derived above and those" in Table 4 rny

be lower than current prices in the Florida land market.. Grove

prices are influenced by other factors besides expected income

from continued citrus production. Proximity to c::pandihg urban

areas for residential or commercial development, and land

ownership viewed as a hedge against inflation are two such

factors.

PAYING THE 1iORTGAGE

To the grove you will likely have to borro:v, money.

The most :.-"u can pay for the ;rove is the most you can borrow

plus cash available for down payment. The most you can borrow

is the most you can repay. You will repay with grove income

(return to land and trees) or non-agricultural income.

.Can the G'ov- Pay Its Own. Tor't'r:e?

Let s make some assumptions.

1) Your existing grove will:
a) pay family living expenses
b) cover new equipment purci ses
c) pay income tax liability on the existing grove

2) Pet'l-n to new grove laandancJ trees is $59,200 ($~? /A x 200 A),
based on 5-year average costs, yields and prices, p. 5.

3) .;' of the return to land and trees on the new grove
will be paid as income tax.

4) Your do.'cn payment is $50,000.

5) You c:-; borrow at 81" interest.

6) You will pay back over 15 years.







$2,000 per acre for the grove before your return on investment

drops below 5%. These prices provide some guidelines on how

much you should pay for a producing citrus' grove and still

-maintain your desired rate of return.

The land prices derived above and those" in Table 4 rny

be lower than current prices in the Florida land market.. Grove

prices are influenced by other factors besides expected income

from continued citrus production. Proximity to c::pandihg urban

areas for residential or commercial development, and land

ownership viewed as a hedge against inflation are two such

factors.

PAYING THE 1iORTGAGE

To the grove you will likely have to borro:v, money.

The most :.-"u can pay for the ;rove is the most you can borrow

plus cash available for down payment. The most you can borrow

is the most you can repay. You will repay with grove income

(return to land and trees) or non-agricultural income.

.Can the G'ov- Pay Its Own. Tor't'r:e?

Let s make some assumptions.

1) Your existing grove will:
a) pay family living expenses
b) cover new equipment purci ses
c) pay income tax liability on the existing grove

2) Pet'l-n to new grove laandancJ trees is $59,200 ($~? /A x 200 A),
based on 5-year average costs, yields and prices, p. 5.

3) .;' of the return to land and trees on the new grove
will be paid as income tax.

4) Your do.'cn payment is $50,000.

5) You c:-; borrow at 81" interest.

6) You will pay back over 15 years.








Your income tax liability will be $17,760 ($59,200 x 0.3)

on the new grove. You will have $41,440 ($.39,200 17,760)

left to service the mortgage.

Table 5 shows how much debt you can support per $1,000

of repr.-yment capacity at various interest rates. At 8ir'

interest and a 15 year p.y-back period you can support

$8,304 .(Table 5) debt per $1,000 of repayment capacity.

Multiplying '8,304 times 41,440,give $344,118, the amount of

y..ey you can pay' back with return to l:nd and trees generated

by the new grove.

Adding the 530,000 down payment gives $394,118 you can

pay for the g zr.:- or $-,971 per acre. Noto that a.cash

interest charge is not made for equity capital. However,

equity capital would likely yield a return in other

alternative investments.

By incresi.:ir. the pay-bach period,- our $41,440 annual

repayment capacity can support more debt. If you take a
20-year mort.:~e, you can repay $392,147 ($9,463 x 41.440)

[Table 53, You can then p:y $412,1A7 ($392,147 + $50,000)
or $2,211 per acre for the grove.

Both of these prices are likely below current grove

selling prices. You vill likely be unable to pay the :mrtgage

with revenue generated from the grove.





Table 5.--Debt which can be s pprT:-f. per $1,000.00 annil, p;ai.lrlt capacity

Rate
Years 6% 6U. 7% 7-% 8% 81% 9% 91% 10% 12%

1 943 939 935 930 926 922 917 913 909 893
2 1,833 1,821 1,808 1,796 1,783 1,771 1,759 1,747 1,754 1,690
3 2,673 2,648 2,621 2,601 2,577 2,554 2,531 2,509 2,487 2,402
4 3,465 3,426 3,387 3,349 3,312 3,276 3,240 3,204 3,170 3,037
5 4,212 4,156 4,100 4,046 3,993 3,941 3,890 3,840 3,791. 3,605
6 4,917 4,841 4,767 4,694 4,623 4,554 4,486 4,420 4,355 4,111
7 5,582 5,485 5,389 5,297 5,206 5,119 5,033 4,950 4,868 4,564
8 6,210 6,0:9 5,971 5,857 5,747 5,639 5,535 5,433 5,335 4,968
9 6,802 6,656 6,515 6,379 6,247 6,119 5,995 5,875 5,759 5,328
10 7,360 7,189 7,024 6,864 6,710 6,561 6,418 6,279 6,145 5,650
11 7,887 7,689 7,499 7,315 7,139 6,969 6,805 6,647 6,495. 5,938
12 8,384 8,159 7,943 7,735 7,536 7,345 7,161 6,984 6,814, 6,194
13 8,853 8,600 8,358 8,126 7,904 7,691 7,487 7,291 7,103 6,424
14 9,295 9,014 8,745 8,489 8,244 8,010 7,786 7,572 7,367 6,628
15 9,712 9,403 9,108 8,827 8,559 8,304y- 8,061 7,828 7,606 6,811
20 11,470 11,019 10,594 10,194 9,818 9,463- 9,129 8,812 8,514 7,469
25 12,783 12,198 11,654 11,147 10,675 10,234 9,823 9,438 9,077 7,843
30 13,765 13,059 12,409 11,810 11,258 10,747 10,274 9,835 9,427 8,055
35 14,498 13,687 12,948 12,273 11,655 11,088 10,567 10,087 9,644 8,175
40 15,046 14,146 13,332 12,594 11,925 11,315 10,757 10,247 9,779 8,244


-I/IExamples in text,


pages 8 and 10.








How .Tiuch Can You Borrow on Returns from Both Groves?

Assume that:

1) Your current grove is c.;:-.:, free and clear.

2), Return to land and trees is $118,400
(".!AA x 400 A).

3) Family living expenses are $12,000.

4) $4,00i. per year above depreciation will be needed&
to replace equipment,

5) 30% of the return to land and trees from both
groves will be paid as ir c,..,' tax.
6). Down payment is $50,000.

7) 3-i" ;-ii ;t s: r,;^e. '. -

8) 15 y.'.:I p:,'-back period.

Your annual repayment capacity will be:

S$118,4 -l Retiuirn to land and trC'es
35,.O Income tax ($118,400 x 0.3)
4, '.. For new equipment
12,00 Family living expenses


You can borrow $555,372 ($8,304 .x,66.880) on a 15 yeir

pay-back period (Table 5). You can pay $605,372 ($555,372 + 50,000)
or $3,,027 per acre for the grove. "'.: a 20-year r:,-'. y,:;t

schedule at an 8-.", interest rate you can i,:ay $682,885 or

$3,414 per acre for the additional grove.

Incre-..!,*i:: down payri.-:;if will increase the pure:haso- price

you can pay. Extcn.:'.Iii term of loan or .-?e,+ie.g lower interest

money will increase debt that you can support with a"given

level of repayment capacity. Cutting family living expenses

can also increase rt-a:. ;".:- : capacity. Frinr.Uly, income from

non-agricultural sourc(gs can increase repayrr -nt capacity.








ATiLERrATIVE I'TVL;TlEiiT T ANALYSIS METHODS

Several methods can be used to compare citrus grove

investment alternatives [4]. The average rate of return

represents the ratio of average profits to average

investment. The payback period is the number of years

required to recover the initial cash investment. Both

methods can result in two investments seeming equally

desirable, when one has more favorable cash flows than the

other.

Two discounted cash flow methods consider both the

magnitude and timing of expected cash flows from a project,

thus avoiding the various shortcomings of the average rate

of return and payback methods. The internal rate of return

for an investment is the discount or interest rate that

brings the present value of expected cash inflows back to

the present value of outflows or cost of the investment.

Under the present value method, all cash flows are discounted

to present value using the required rate of return. All

of these methods only indirectly consider repayment of

financial obligations generated by the investment. These

methods could indicate a grower could pay a higher price

for a grove than his debt repayment capacity can support.

Investments, no matter how profitable in the long

run, cannot be made if short run financial obligations

are not met.









POINTS TO nE:iErIBER r

Grove i;:r.cst.:..nts- can be valued; on -costs 'and returns,

and'rate of return on I lv ,..e :vt. However, aceir.'.::,-in

establishing grove value rests upon accurate deterr.::inafion

.of e.-:;ected costs and returns to that acreage. The situation

c:.:'.::le was i:-s.ed on ]:--:.:l!, the ,::ro in pr-c hc,.tion. If

grove value is based upon other, fLu t..' .-uses (for example,

development), the value should be based more upon market

conditions than net income .fro: citrus production. .

Your loan r-'. : ?' : c .ilities can be *.:.r....:c

stretching:, the length of the mortgage or searching out-.lo.'t..er-

interest rates.

You should use thi:. material. as a gu:.,. to help you

determine how much :ou ca.i pay for a proctii.n.g itrlu, r .:Oe -

to achieve a desired return and how much you can pay based on

your .'apdi.:L'i: to pay a '-'r-:r._gge.








REFERENCES


[1] Alston, Clifford, Farm Real Estate Evaluation, Circular
333, Florida Agricultural Extension Service, Institute
of Agricultural Services, University of Florida,
Gainesville, FL 32611.


[23 Florida Crop and Livestock Reporting Service, Florida
Agricultural Statistics, Citrus Summary 1976, December
1976.


[3] Muraro, R. P., Ben Abbitt, Budgeting Costs and Returns:
Central Florida Citrus Production, 1976-77, Economic
Information Report No. 73, June 1977, Food & Resource
Economics Dept., Cooperative Extension Service, IFAS,
Gainesville, FL 32611.

[4] Van Horne, James C., Financial Management and Policy,
Third Edition, Prentice Hall, Inc. 1974, Englewood
Cliffs,. New Jersey.























This public document was promulgated at an annual cost of $200 or 204 per
copy to furnish the citrus industry with current data on evaluating grove
acreage prices for the Food and Resource Economics Department, Institute
of Food and Agricultural Sciences, and the University of Florida.




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