• TABLE OF CONTENTS
HIDE
 Front Cover
 Abstract
 Table of Contents
 List of Figures
 Main
 Appendix A: Lee and Rask land bib...
 Appendix B: Complete results...
 Back Cover






Group Title: Computer series
Title: LAND-BID
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00095277/00002
 Material Information
Title: LAND-BID maximum bid price analysis for agricultural land purchase
Alternate Title: Price analysis for agricultural land purchase
Physical Description: 1 computer disk + : ;
Language: English
Creator: Prevatt, J. Walter ( James Walter ), 1953-
Phillips, Susan, 1958-
Publisher: Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville
Gainesville
Publication Date: 1986
Copyright Date: 1986
 Subjects
Subject: Farms -- Valuation -- Computer programs   ( lcsh )
Real property -- Valuation -- Computer programs   ( lcsh )
Real property -- Prices -- Computer programs   ( lcsh )
LAND-BID (Computer program)   ( lcsh )
Genre: bibliography   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
 Notes
Statement of Responsibility: J. Walter Prevatt and Susan Phillips.
Bibliography: Bibliography: p. 22.
General Note: Cover title.
General Note: "February 1986."
General Note: Circular - Florida Agricultural Experiment Stations ; 698
 Record Information
Bibliographic ID: UF00095277
Volume ID: VID00002
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 15181623

Table of Contents
    Front Cover
        Page 1
    Abstract
        Page 2
    Table of Contents
        Page 3
    List of Figures
        Page 4
    Main
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
    Appendix A: Lee and Rask land bib price model
        Page 23
        Page 24
        Page 25
        Page 26
    Appendix B: Complete results printout
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
        Page 43
    Back Cover
        Page 44
Full Text
10l

February 1986
(69


Floppy disc included with this
item has been shelved separately.
Consult LUIS or ask circulation
staff for assistance.


Circular 698


LAND-BID:

Maximum Bid Price Analysis for
Agricultural Land Purchase


COMPUTER SERIES


J. Walter Prevatt and
Susan Phillips


Food and Resource Economics Department
Florida Cooperative Extension Service
Institute of Food and Agricultural Sciences
University of Florida

101 tiv Extension Service / Institute of Food and Agricultural Scine / Univmity of Florida / John T. Wost, Dean
F636c
698
guide









ABSTRACT


This manual explains how to use LAND-BID, a microcomputer
program for the IBM PC that calculates the maximum bid price for
agricultural land. The LAND-BID program uses 11 variables to
calculate the maximum bid price and generates 10 one-way sensiti-
vity tables, 6 two-way sensitivity tables and 10 graphs.



KEYWORDS: Asking price, rate of return, planning horizon, net
returns before taxes, growth in net returns, marginal tax rate,
down payment, interest rate, amortization period, inflation rate
of land values, capital gains tax rate, Lotus 1-2-3.





ACKNOWLEDGMENTS

Sincere thanks are extended to Dr. William Boggess who
provided assistance throughout the development of this program
and to Dr. Jong-Ying Lee for his help in transforming the
original equation.








TABLE OF CONTENTS


Page

Introduction ......................................... 5
Program Description.............................. 5
Program Specifications........................... 6

General Program Concepts............................... 6

Program Operation..................................... 8
Making Back-Up Copies............................ 8
Starting LAND-BID................................ 9
General Instructions ............................. 10

Sample Run and Interpretation........................ 12
GENERAL Data Section............ ................. 12
VARIABLE Data Section ............................ 13
INCREMENTS Data Section........................... 14
ONE-WAY Option...................................... 15
TWO-WAY Option ................................... 17
GRAPH Option.................................... 18
PRINT Option..................................... 20
SAVE/EXIT Option................................. 20

Summary.................................... ... 20

Ordering Information.................................. 21

References .................. .......................... 22

Appendix A: Lee and Rask Land Bid Price Model........ 23

Appendix B: Complete Results Printout................ 27









LIST OF FIGURES



Page

Figure 1. LAND-BID Title Page and Main Menu.......... 9

Figure 2. LAND-BID Menu Flow Chart................... 11

Figure 3. GENERAL Data............................... 13

Figure 4. VARIABLE Data.............................. 14

Figure 5. INCREMENTS Data............................ 15

Figure 6. Sample One-Way Sensitivity Table........... 17

Figure 7. Sample Two-Way Sensitivity Table........... 18

Figure 8. Sample Graph............................... 19







LAND-BID:
Maximum Bid Price Analysis for Agricultural Land Purchase


J. Walter Prevatt and Susan Phillips




INTRODUCTION

The most important decision farmers and ranchers are ever
to make is determining how much they can afford to pay for
land. Land purchase represents the single largest capital
investment for the farming operation and commonly results in
large and long-term financial obligations.

In today's agricultural economic environment, evaluating
the land purchase decision requires much attention in light of
depressed market prices and excess commodity supplies which have
produced in many cases marginal or negative net incomes. These
conditions emphasize the importance of adequately evaluating land
purchase criteria.


Program Description

LAND-BID: Maximum Bid Price Analysis for Agricultural Land
Purchase is a microcomputer program based on an analytical model
developed by Lee and Rask [3]. This maximum bid price model is
complex and difficult to use when computations are made with a
calculator and very time consuming and cumbersome to compute with
only pencil and paper. A microcomputer application of the maxi-
mum bid price model is appropriate since the calculation time is
now measured in seconds instead of hours.

LAND-BID provides a quick and easy way for agricultural
operators, investors, land appraisers, real estate agents, loan
officers and others involved in the purchase of agricultural land
to analyze how much they, or their clients, can afford to pay for
land based on specific circumstances. In addition to calculating
the maximum bid price, the program generates several tables and



------------------------
J. Walter Prevatt is an Associate Professor, Farm Management
Economist located at GCREC--Bradenton and Susan Phillips is an
Economic Analyst at Gainesville. Food and Resource Economics
Department, Institute of Food and Agricultural Sciences, Univer-
sity of Florida.

5 ulVERSITYOa i Lt':l








graphs that indicate how sensitive the bid price is to changes
in the variables. The sensitivity analyses greatly enhance the
ability of an investor to make knowledgable business decisions
when considering the purchase of agricultural land.


Program Specifications

LAND-BID requires the following hardware and software: an
IBM PC microcomputer or compatible, PC-DOS or MS-DOS, 320K
memory, hard disk or dual floppy disks, printer, color or mono-
chrome monitor and Lotus 1-2-3 release 1.A integrated software.
The printer is optional but recommended for hardcopy output. To
view the graphs a color or graphics monitor is required. A
monochrome monitor without an appropriate graphics card will not
display the graphs. All graphs may be produced on a graphics
printer using the PrintGraph function provided in the Lotus
software package.

LAND-BID requires few microcomputer skills. Even the novice
Lotus user will be able to use LAND-BID because the program takes
advantage of Lotus 1-2-3 menus and range input capabilities.


GENERAL PROGRAM CONCEPTS


The traditional income capitalization formula us
mate the value of land is V = I/R, where V is the est
value, I is the expected annual net return to land, a
capitalization rate. This method results in an accur
of land value only if the variables I and R remain co
a very long investment time. Obviously, in today's a
economic environment it is unreasonable to assume that
variables will remain constant over time. Therefore,
produces an estimate of land value that is subject to
reconciliation. For instance, this method frequently
mates or underestimates the value of land when compare
market value or cost approaches used to estimate the
real property and therefore requires appraisers to rec
differences in the value estimates. Commonly, appraise
agricultural operators attempt to use conservative va3
and R to prevent them from overestimating the value ol
This conservative approach coupled with the assumption
variable values remain constant over time suggests pos
shortcomings of the income capitalization approach.


id to esti-
mated
id R is the
Lte estimate
distant over
rricultural
these
this method
much
)veresti-
d with the
alue of
oncile the
ers and
ues for I
land.
that the
sible


In an attempt to further define the value of land, Lee and
Rask developed a more extensive equation that describes the
factors involved in the land purchase decision. This approach
evaluates land purchase using standard capital budget ng
procedures. Several additional factors are included n the
capital budgeting approach. For instance, the price n
agricultural operator can afford to pay for land is t pically








influenced by future income expectations and the opportunity cost
of capital. Also, the purchase of land is generally financed,
which suggests that credit terms such as interest rates, down
payments and length of loan amortization periods must be
evaluated. Income tax considerations, both annual net returns
and long-term capital gains, affect the land purchase decision.
A prospective purchaser's bidding potential is also affected by
the length of time the buyer expects to earn income from the
land, future trends in land prices and future trends in annual
net returns.

The inclusion of the above mentioned factors by Lee and Rask
results in a more complicated equation than the traditional
income capitalization formula previously discussed. However,
this equation describes in more detail the factors affecting the
land purchase decision and allows the opportunity to evaluate
what effect certain changes in one or more of the variables will
have on the maximum bid price for land. See Appendix A for the
equation.

The land purchase decision is affected by many variables.
Correctly identifying and accurately assessing the factors that
determine the value of a particular parcel of agricultural land
are prerequisites to negotiating a bid price [1]. However,
assessing what values to use for annual net returns, the
opportunity cost of capital, growth in annual net returns, growth
in real estate prices and other variables is at best a
"guesstimate" that requires the purchaser to accept a fair amount
of risk. Nonetheless, understanding how a given variable will
affect the maximum bid price will contribute more information
with which to make a better land purchase decision [2].

The LAND-BID program presented in this publication was
developed to provide agricultural operators with a tool to
rigorously evaluate some of the conditions surrounding the land
purchase decision. The LAND-BID program requests the user to
supply values for the 11 parameters described in the equation.
The following describes the parameters used to evaluate the
maximum bid price. The numbers in parentheses are the values
used for the sample run which is discussed later in the manual.


P asking price per acre of the parcel being considered
($1,000)
CC buyer's opportunity cost of capital after taxes,
i.e., discount rate or desired rate of return on
investment (10%)

n buyer's planning horizon, i.e., number of years
income is expected from the land (25 years)








ANI = buyer's expected annual net returns per a<
taxes ($85)

GNI buyer's expected rate of growth on expect
net returns per acre (2%)

MTR = buyer's marginal income tax rate based on
taxable income after land is purchased (3i

DP proportion of the purchase price paid dowl
mortgage (25%)


IR =

t N

INF -


3re before


id annual


estimated
o%)
Son the


nominal interest rate charged on the mort age

amortization period of the loan (20 years


expected annual rate of inflation in land values


(12.5%)


T = tax rate that will apply to capital gains
year "n" when land is sold (20%)


PROGRAM OPERATION

Making Back-up Copies

Before beginning your first LAND-BID session it i
to protect the original distribution disk by making a
copy. Store the original disk in a safe location and
back-up copy for day-to-day activity.


(3%)


income in







s essential
back-up
use the


Making a back-up copy is easy, following these instructions:


1. Put the Lotus Utility Disk (with system) in
turn the power on. If the power is already
system restart command. For the IBM PC this
sequence is {alt)(ctrl}(del}.

2. Label a blank disk as "LAND-BID (working cop
this disk in drive B for dual drives, or driv
hard drive users. Lotus will prompt single d
to switch disks.


rive A and
n issue the
key

y)" and put
e A for
rive owners


Select the Disk Manager option and press .

Now select the Disk Copy option and press .


5. When prompted, remove the Utility Disk from d
insert the original LAND-BID program disk and
.


rive A,
press









6. When the copy is complete remove the original LAND-BID
disk from drive A and put it in a safe location. Use
the new copy of LAND-BID for day-to-day activity.

7. The LAND-BID disk should contain 11 files: AUTO123.WKS,
GRAPH1.PIC, GRAPH2.PIC, GRAPH3.PIC, GRAPH4.PIC,
GRAPHS.PIC, GRAPH6.PIC, GRAPH7.PIC, GRAPH8.PIC,
GRAPH9.PIC and GRAPH10.PIC.



Starting LAND-BID

To start the LAND-BID program follow these easy steps:

1. Put the Lotus system disk in drive A and turn on the
computer. If the computer is already on issue the
system restart command, or if you have the system A>
prompt just type LOTUS and press . Hard drive
users may a have different start-up procedure depending
on how the individual system is configured.

2. Put your LAND-BID working copy in drive B. Single drive
users will need to swap disks after step 3.

3. Select the 1-2-3 option.

4. The program will automatically load and display the
title page (see Figure 1). To read the optional IFAS
disclaimer message first select the SAVE/EXIT main menu
option and then select the DISCLAIMER message. After
reading the disclaimer message, select the RETURN option
to return to the main menu by pressing .


GENERAL VARIABLE INCREMENTS ONE-WAY TWO-WAY GRAPH
Enter general descriptive data on subject parcel.
****************************************************
LAND-BID *
* Maximum Bid Price Analysis for *
* Agricultural Land Purchase *
* Version 1.00 *
* *
* *
* Developed by: *
* FOOD AND RESOURCE ECONOMICS DEPARTMENT *
* *
* (C) IFAS, University of Florida, 1985 *
* *
***************************************************


Figure 1. LAND-BID Title Page and Main Menu


PRINT SAVE/EXIT








General Instructions


User input is limited to three screens. Therefo e, only a
very limited knowledge of Lotus is required to use D-BID
effectively. LAND-BID uses the Lotus "range input" f cility
exclusively. This facility only allows the user to e ter data
into high intensity green cells. High intensity cell as the
name implies, appear brighter than low or normal inte sity
cells. The difference in intensities is easily distinguishable
on the monitor display. For color monitors these cel s will
always be green instead of red or blue.

To enter data simply move the cursor to the desired
location and type in your response on the keyboard an press the
key. If your entry is a label (words instead of numeri-
cal values), begin your entry with an apostrophe ('). This is
especially important if your label starts with a numb r instead
of a letter. When entering percentages, type them in as a
decimal (0.12) or a number followed by % (12%). To m ve to
another data entry location use the up or down arrows located to
the right of the keyboard on the number pad. If numb rs appear
on the screen, instead of moving the cursor press the (Num Lock}
key and try again.

To make changes to items already entered in the orksheet
just type over the existing value. To erase a single cell move
the cursor to the desired cell and press the space ba once and
then press the key.

LAND-BID is completely menu driven which means t at you
direct the activity of the program by the choices tha you select
at the top of the screen. LAND-BID menus work in the same manner
as Lotus command menus. Each menu is designed to giv you a
brief explanation of the selection that is highlighted. By
moving the cursor to each of the key words on the top of the menu
you can read each explanation on the second line of the menu. To
highlight a menu selection move the cursor to the desired option
and then to actually make the selection press the key.
Although Lotus allows you to make selections by pressing the
first letter of the name, as in E for Exit, for the LAND-BID
program it is better to always use the cursor to highlight your
selection since on some menus there will be more than one option
beginning with the same letter.

There are eight main menu headings which include GENERAL,
VARIABLE, INCREMENTS, ONE-WAY, TWO-WAY, GRAPH, PRINT, and
SAVE/EXIT. These menu headings are illustrated in Fi gre 2.
Additional submenus are indicated for various main menu headings.





GENERAL ---------------------------

VARIABLE ---------------------


I I I I
ENTER/EDIT CALC CALC/RETURN RETURN




ONE-WAY --------------------------


I I I I I I I
CC n ANI GNI MTR MORE RETURN
I

I I I I I I I I
DP IR t INF T PREVIOUS RETURN


TWO-wAY --------------------------
I I

I I I I I I I I
ANI/INF INF/IR INF/n IR/t DP/IR ANI/GNI RETURN


GRAPH ---------------------------
II

I I I I I I I
CC n ANI GNI MTR MORE RETURN
I I
I I I I I I I -
DP IR t INF T PREVIOUS RETURN


PRINT ------------------------I
I I
I I I-
PRINT ALL PARTIAL RETURN

SAVE/EXIT -------------------------
I

I I I I I
SAVE ONLY SAVE & EXIT EXIT ONLY DISCLAIMER RETURN


Figure 2. LAND-BID Menu Flow Chart

11








SAMPLE RUN AND INTERPRETATION


Numerous alternatives and conditions may be easi
using the LAND-BID program. The following sample run
provide an example of one land purchase evaluation.

Let's assume that a farmer who grows corn and so
found a 200 acre parcel of land for sale at $200,000
per acre. The land is suitable for growing his crops
allow him to better utilize his equipment. He has de
following data from his records and personal project
future trends:



(P) ASKING PRICE PER ACRE

(CC) BUYER'S DESIRED RATE OF RETURN AFTER TAXES

(n) BUYER'S PLANNING HORIZON (YEARS)

(ANI) EXPECTED ANNUAL NET RETURNS/ACRE BEFORE TAXES


(GNI)


EXPECTED ANNUAL RATE OF GROWTH IN NET RETURNS/


(MTR) BUYER'S MARGINAL INCOME TAX RATE

(DP) PROPORTION OF THE PURCHASE PRICE PAID DOWN

(IR) NOMINAL RATE OF INTEREST CHARGED ON MORTGAGE

(t) AMORTIZATION PERIOD OF THE MORTGAGE (YEARS)


(INF)

(T)


EXPECTED ANNUAL RATE OF INFLATION ON LAND VALU

CAPITAL GAINS TAX RATE IN YEAR LAND IS TO BE S


Equipped with this information you are now ready
to use the LAND-BID program. It is extremely helpful
collected and decided what variable values are reason
appropriate for your situation prior to running the p
will reduce the time necessary to evaluate the maximum
and often results in the use of more realistic variab
estimates. The following sample run presents a discus
interpretation of using the LAND-BID program.



GENERAL Data Section

The first section in the LAND-BID program, ident
GENERAL, allows you to describe the general data pert
the parcel of land being analyzed. To enter informant


ly evaluated
will


beans has
or $1,000
and would
veloped the
ons about




$1,000

10.00%

25

$85

ACRE 2.00%

30.00%

25.00%

12.50%

20

ES 3.00%

)LD 20.00%


to proceed
if you have
able or
program. This
n bid price
Le value
sion and





ified as
lining to
Lon in the









GENERAL data section simply move the cursor to GENERAL and press
. Move the cursor to the appropriate location and enter
or edit the data. The general data include information on
parcel size and type, legal and physical descriptions and land
use as shown in Figure 3. Although this information is optional
and does not affect the calculation of the maximum bid price, the
information is particularly helpful when comparing other purchase
alternatives.

After entering the general data, simply press a "null"
to get back to the main menu. A null return is
accomplished by pressing the key without making any
corresponding data entry. Each of the three user input sections
operates in this same manner.



GENERAL DATA:
............ Prepared by: Farmer Green
Date: May 12, 1985
County: Sunshine
Parcel Size (Acres):
Total 200 Trees
Cultivated 200 Range
Pasture Woods
Legal Description: Physical Description:
SW 1/4 SEC 12 and S 1/4 Leon fine sand
NW 1/4 SEC 12, TUN 7S, Moderate slope 4"-6"/100'
R 21E. 10 inch well

Previous Use: Vegetable crop
Intended Use: Field crops
Potential Use: Sod, pasture, timber



Figure 3. GENERAL Data



VARIABLE Data Section

The main menu selection labeled VARIABLE lets you enter and
edit the variables used for calculating the maximum bid price and
then actually calculate the maximum bid price. To enter values
or edit values previously entered, select the ENTER/EDIT option
from the submenu. When all the values are correct, press
to again access the submenu.

There are two ways to calculate the worksheet. The first
method is to select the CALC option. This option calculates
the entire worksheet, displays the maximum bid price and returns
you to the VARIABLE submenu. You may alter the variable data and
recalculate the maximum bid price using the CALC option as many










times as desired before moving on to the sensitivity
graphs.

The second method to calculate the maximum bid p:
select the CALC/RETURN option. This option calculated
entire worksheet but returns you to the main menu.

The last option on the VARIABLE submenu is RETUR]
option will simply return you to the main menu.

In this example, the maximum bid price, given thi
tion compiled by our farmer, was calculated (using th<
option) to be $872 which is less than the asking prico
Figure 4 illustrates the VARIABLE data section compleW
sample numbers.



VARIABLE DATA:


(P)
(CC)
(n)
(ANI)
(GNI)
(MTR)
(DP)
(IR)
(t)
(INF)
(T)


ASKING PRICE PER ACRE
BUYER'S DESIRED RATE OF RETURN AFTER TAXES
BUYER'S PLANNING HORIZON (YEARS)
EXPECTED ANNUAL NET RETURNS PER ACRE BEFORE TAXES
EXPECTED ANNUAL RATE OF GROWTH IN NET RETURNS/ACRE
BUYER'S MARGINAL INCOME TAX RATE
PROPORTION OF THE PURCHASE PRICE PAID DOWN
NOMINAL RATE OF INTEREST CHARGED ON MORTGAGE
AMORTIZATION PERIOD OF THE MORTGAGE (YEARS)
EXPECTED ANNUAL RATE OF INFLATION ON LAND VALUES
CAPITAL GAINS TAX RATE IN YEAR LAND IS TO BE SOLD


(MBP) MAXIMUM BID PRICE:


$872


Figure 4. VARIABLE Data



INCREMENTS Data Section


Analysis or


rice is
; the


3


The information from this section is used to gen
one-way and two-way sensitivity tables. The INCREMENT
screen looks very much like the VARIABLE data screen,
instead of entering, for example, the actual desired r
return, you will enter a value by which you would like
the desired rate of return vary in the sensitivity ana
Default values for the increments are already entered
original distribution disk, as shown in Figure 5. You
look at each value and determine if it is appropriate
particular analysis.


This


informa-
CALC
per acre.
e with our







00
00%


DoX
25
85
00%
00%
00%
50X
20
00%
00%












rate the
S data
except that
ate of
to see
ysis.
n the
should
or your








When you leave the INCREMENTS section the entire worksheet
will automatically recalculate. This updates the tables with the
new incremental values.



VALUES USED FOR INCREMENTS ON SENSITIVITY ANALYSIS


DEFAULT


(CC) BUYER'S DESIRED RATE OF RETURN AFTER TAXES 1.00%
(n) BUYER'S PLANNING HORIZON (YEARS) 1
(ANI) EXPECTED ANNUAL NET RETURNS PER ACRE BEFORE TAXES $15
(GNI) EXPECTED ANNUAL RATE OF GROWTH IN NET RETURNS/ACRE 1.00%
(MTR) BUYER'S MARGINAL INCOME TAX RATE 5.00%
(DP) PROPORTION OF THE PURCHASE PRICE PAID DOWN 4.00%
(IR) NOMINAL RATE OF INTEREST CHARGED ON MORTGAGE 1.00%
(t) AMORTIZATION PERIOD OF THE MORTGAGE (YEARS) 2
(INF) EXPECTED ANNUAL RATE OF INFLATION ON LAND VALUES 1.00%
(T) CAPITAL GAINS TAX RATE IN YEAR LAND IS TO BE- SOLD 2.00%



Figure 5. INCREMENTS Data



ONE-WAY Option

The main menu selection, ONE-WAY, generates sensitivity
analysis for a particular variable and presents the maximum
bid price associated with given incremental levels of change
(from the INCREMENTS section) for the variable under evaluation.
There are 10 tables and these choices are divided into two
submenus. The first submenu lets you view the sensitivity
tables for the desired rate of return, planning horizon, annual
net returns, growth in annual net returns and marginal tax rate.
To get more table selections use the MORE option. To return to
the main menu select the RETURN option. The second submenu lets
you choose tables for the percentage of down payment, interest
rate, amortization period, inflation rate on land values and the
capital gains tax rate. To go back to the previous table
selections use the PREVIOUS option. To return to the main menu
use the RETURN option.

Figure 6 is a sample one-way sensitivity table for the
expected annual net returns before taxes. The asterisk (*)
denotes the base value that you entered in the VARIABLE section.
The base value will be useful for making comparisons and inter-
pretations. For example, if the buyer's expected annual net
return before taxes is less than our sample base value of
$85, then the maximum bid price the buyer can afford to pay for
land decreases. Correspondingly, if the buyer's expected








annual net returns before taxes is greater than the base value,
then the maximum bid price the buyer can afford to pay for
land increases.

In addition, a bid price sensitivity is analyzed to demon-
strate the sensitivity of the variable being evaluated. The
bid price sensitivity information includes both the absolute
dollar change and the percentage change in the maximum bid price
from the base value and also a sensitivity index. The
sensitivity index (S.I.) is the percentage change in the maximum
bid price divided by the percentage change in the variable being
evaluated (e.g., annual net returns). The sensitivity index is
interpreted from the base value as, given a 1% change in the
variable value, the maximum bid price results in a corresponding
+/- X.XXX% change as denoted by the S.I. For example, reducing
the base value of the buyer's expected annual net returns before
taxes from $85 to $70 results in a $124 decrease in the maximum
bid price per acre, as shown in Figure 6. Also, for every 1%
decrease between $85 and $70, there is a -0.806% decrease in
the maximum bid price. Likewise, for every 1% decrease between
$85 and $10, there is a -0.806% decrease in the maximum bid
price per acre of land. The S.I. should be interpreted as the
larger the number the more sensitive the variable. The sign
associated with the S.I. number indicates that the maximum bid
price increases with a positive number and decreases with a
negative number.

The sensitivity information presented in this se tion is
very helpful especially when considering a range of p ssible
variable values based on historic records and future projections.
This approach will aid the purchaser with a more real stic idea
of what price can be profitably paid for land. For in tance, an
agricultural operator may estimate on a historical basis that
expected annual net returns before taxes have been $8 +/- $30
for this type of farming operation. Correspondingly, an examina-
tion of the maximum bid price for a range of $55 to $.15 per acre
suggests that the maximum bid price range would be between $624
and $1,120 per acre. Based on this information the mo t
optimistic land purchaser would not want to pay more han $1,120
per acre. However, more conservative land purchasers would not
want to pay more than $624 per acre and certainly no ore than
$872 per acre, the average annual net return before t xes per
acre ($85).










TABLE 3. MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE EXPECTED ANNUAL NET RETURNS BEFORE TAXES

BID PRICE SENSITIVITY
NET MAXIMUM CHANGE CHANGE S.I.
RETURNS BID PRICE (S) (X)

10 252 (620) -71.15% -0.806
25 376 (496) -56.92% -0.806
40 500 (372) -42.69% -0.806
55 624 (248) -28.46% -0.806
70 748 (124) -14.23% -0.806
*85 872 0 0.00% 0.000
100 996 124 14.23% 0.806
115 1,120 248 28.46% 0.806
130 1,244 372 42.69% 0.806
145 1,368 496 56.92% 0.806
160 1,492 620 71.15% 0.806



Figure 6. Sample One-Way Sensitivity Table



TWO-WAY Option

The TWO-WAY selection evaluates the maximum bid price per
acre given incremental changes in two variables. This informa-
tion is available for six combinations of variables that are
particularly sensitive. You can select the table to view from
the submenu by moving the cursor to the desired item and pressing
the key. Use the RETURN option to return to the main
menu.

The tables generated in the TWO-WAY section include the
effects on the maximum bid price from a change in: annual net
returns and inflation on land values, inflation on land values
and interest rate, inflation on land values and planning horizon,
interest rate and amortization period, down payment rate and
interest rate and annual net returns and growth in annual net
returns. The maximum bid price resulting from various levels of
expected annual net returns before taxes (ANI) and the inflation
rate on land values (INF) is illustrated in Figure 7.

The information developed in this section illustrates how
two factors affect the maximum bid price per acre for land.
In addition, a range for the variables can be assumed which
enables the user to identify a range of bid prices that are
acceptable for use in negotiating a purchase price.










TABLE 11. MAXIMUM BID PRICES RESULTING FROM A CHANGE IN
EXPECTED ANNUAL NET RETURNS BEFORE TAXES and
THE INFLATION RATE ON LAND VALUES

NET
RETURNS

115 | 1,055 .1,083 1,120 1,116 1,224 |
100 931 959 996 1,042 1,100 1
85 806 835 872 918 976 1
70 682 711 748 794 852 |
55 | 558 587 624 670 728 |

1.00% 2.00% 3.00% 4.00% 5.00%
INFLATION



Figure 7. Sample Two-Way Sensitivity Table



GRAPH Option

This option -lets you view the graphs of the one-way sensi-
tivity analysis. The GRAPH option operates much like the
ONE-WAY option. There are 10 graphs and these choices are
divided into two submenus. The first submenu lets you view the
one-way sensitivity graphs for the desired rate of return,
planning horizon, annual net returns, growth in annual net
returns and marginal tax rate. For more graph selections use
the MORE option. To return to the main menu select the RETURN
option. The second submenu lets you choose graphs for the down
payment rate, interest rate, amortization period, inflation rate
on land values and the capital gains tax rate. To go back to the
previous graph selections use the PREVIOUS option. To return to
the main menu use the RETURN option.

The maximum bid price resulting from various levels of the
buyer's desired rate of return is illustrated in Figure 8.
The graphs are useful for lenders, appraisers, real estate
agents and others to better describe or communicate the
relationship between the variable and the maximum bid price per
acre of land.

There are no graphs for the two-way sensitivity analysis
since Lotus 1-2-3 graphing capabilities do not support
3-dimensional graphs.

If you plan to print the graphs using the Lotus PrintGraph
function you must select the GRAPH option and view each graph
that you expect to print. The reason for this is that Lotus must
update the graph picture with the current information and save it









to disk for later printing. Using one of the SAVE options from
the SAVE/EXIT menu is not sufficient.

NOTE: Even if you do not have a graphics monitor you still
must select and "view" each graph that you want to print.
However, because a nongraphics monitor will not display the
graphs, Lotus will continue to flash the WAIT message in the
upper right corner of the screen. To force Lotus to continue
press the key and then the key. Lotus will
now save the graph image on disk for later printing.


MAXIMUM BID PRICE
Desired Rate of Return


1.3


1.2


1.1


1


0.9-


0.8-


0.7-


0.6- 1
5.00W 6.00% 7.00% 8.00%


9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00%
RATE OF RETURN


Sample Graph


o
IL :
rc


3i


Figure 8.










The PRINT option lets you print a hardcopy of the analysis
results. There are two choices. You can print the complete
analysis results using the PRINT ALL option, which i cludes the
general, variable and incremental data and all the tables. Or,
you can use the PARTIAL option to print partial results which
includes just the general and variable data. The RE RN option
returns you to the main menu. Frequently you will want to obtain
a hardcopy to examine later and/or distribute the results to
others. A complete sample printout is located in Appendix B at
the end of this manual.


SAVE/EXIT Option

This option lets you save your work and continue ( AVE ONLY),
save your work and exit Lotus 1-2-3 (SAVE & EXIT), ex t 1-2-3
without saving any work (EXIT ONLY) and view the IFAS disclaimer
message (DISCLAIMER). The RETURN option will return ou to the
main menu.


SUMMARY

LAND-BID: Maximum Bid Price Analysis for Agricul ural Land
Purchase uses current situational information as well as future
expectations to generate the maximum bid price for la d. The user
must supply information on the following 11 variables asking
price per acre, buyer's desired rate of return, buyer s planning
horizon, expected annual net returns before taxes, ex ected
growth in annual net returns, buyer's marginal tax ra e, percent
of purchase price as down payment, nominal interest r te charged
on the mortgage, amortization period of the mortgage, expected
annual inflation rate in land values, and capital gai s tax rate
to be applied in the year the land is sold. Based on his
information, the program computes the maximum bid pri e per acre.
In addition, the program generates several tables and graphs
which describe how sensitive the bid price is to chan es in the
variables.

The maximum bid prices for agricultural land obt ined with
this program are highly sensitive to the assumptions f the
variable value estimates associated with present and uture
annual net returns, interest rates, amortization peri ds, and
land appreciation rates. Estimates of these variables should be
carefully considered when calculating the maximum bid price
of agricultural land.

The maximum bid price generated using the LAND-B D program
is the price per acre an investor can afford to pay for land
assuming all the variable values are correct for the planning
horizon. Should the maximum bid price calculated be 1 ass than the


PRINT Option








asking price, then the investment in the land would be unprofit-
able. The LAND-BID program does not evaluate the financial feasi-
bility or debt repayment capacity of the land purchase.

LAND-BID does provide investors with a maximum bid price
that can be used to determine if the land purchase is a profit-
able or unprofitable investment. The use of this program should
provide additional information about those factors affecting land
purchase prices and lead to more informed land purchased
decisions.


ORDERING INFORMATION

For more information on this and other IFAS microcomputer
software contact your county extension agent or write to:

IFAS Software Communication and Distribution
G022 McCarty Hall
University of Florida
Gainesville, Florida 32611









REFERENCES


[1] Abbitt, Ben and Holt, John. "Investing in Agrio
Land? Be Careful", Florida Food and Resou
Economics, Number 24. Institute of Food a
Agricultural Sciences, University of Flori
September-October, 1978.

[2] Abbitt, Ben, Holt, John and Otte, J.A. "Citrus
As Determined By Discounting Expected Inco
Costs", Horticulture. Vol. 92:15-17, 1979.

[3] Lee, Warren F. and Rask, Norman. "Inflation an
Profitability: How Much Can Farmers Pay for
American Journal of Agricultural Economics.
1976:984-989.


cultural
ce
d
a,


Grove Prices
e and


Crop
Land?",
December



























APPENDIX A: LEE AND RASK LAND BID PRICE MODEL








Lee and Rask Land Bid Price Model


n (1 + GNI)i (1.+ INF)n
p* = { E (ANI) (1 MTR) + + IF) (P) (1 T*) }
i=l (1 + CC)n (1+ CC)
t t
S{ DP + (1 DP) [( + CC)- 1] [LR(1 + IR) ] (1 DP) (MTR) (IR)
CC(1 + CC) (1 + IR)t -1

IR(1 + IR)t 1 (1 + IR)t-i+l 1 T*
St-i+ 1 T*
(1 + IR)t-l i1- (1 + CC) IR(1 + IR)t-+1 (1 + CC)n


where t
P* = Maximum Bid Price Per Acre
(P) = Asking Price Per Acre
(CC) = Buyer's Desired Rate of Return After Taxes
(n) = Buyer's Planning Horizon (Years)
(ANI) = Expected Annual Net Returns/Acre Before Taxes
(GNI) = Expected Annual Rate of Growth, Net Returns/Acre
(MTR) = Buyer's Marginal Income Tax Rate
(DP) = Proportion of the Purchase Price Paid Down
(IR) = Nominal Rate of Interest Charges on Mortgage
(t) = Amortization Period of the Mortgage (Years)
(INF) = Expected Annual Rate of Inflation in Land Values
(T*) =-Capital Gains Tax Rate in Year Land is to be Sold


























APPENDIX B: COMPLETE RESULTS PRINTOUT








LAND-BID
Maximum Bid Price Analysis for
Agricultural Land Purchase
Version 1.00


Developed by:
FOOD AND RESOURCE ECONOMICS DEPARTMENT

(C) IFAS, University of Florida, 1985


GENERAL DATA:


Prepared by:
Date:
County:


Farmer Green
May 12, 1985
Sunshine


Parcel Size (Acres):
Total
Cultivated
Pasture


Legal Description:
SW 1/4 SEC 12 and S 1/4
NW 1/4 SEC 12, TWN 7S,
R 21E.


Previous Use:
Intended Use:
Potential Use:


Physical Description:
Leon fine sand
Moderate slope 4"-6"/100'
10 inch well


Vegetable crop
Field crops
Sod, pasture, timber


VARIABLE DATA:
-------------


(P)
(CC)
(n)
(ANI)
(GNI)
(MTR)
(DP)
(IR)
(t)
(INF)
(T)


ASKING PRICE PER ACRE
BUYER'S DESIRED RATE OF RETURN AFTER TAXES
BUYER'S PLANNING HORIZON (YEARS)
EXPECTED ANNUAL NET RETURNS PER ACRE BEFORE TAXES
EXPECTED ANNUAL RATE OF GROWTH IN NET RETURNS/ACRE
BUYER'S MARGINAL INCOME TAX RATE
PROPORTION OF THE PURCHASE PRICE PAID DOWN
NOMINAL RATE OF INTEREST CHARGED ON MORTGAGE
AMORTIZATION PERIOD OF THE MORTGAGE (YEARS)
EXPECTED ANNUAL RATE OF INFLATION ON LAND VALUES
CAPITAL GAINS TAX RATE IN YEAR LAND IS TO BE SOLD


$1,000
10.00%
25
$85
2.00%
30.00%
25.00%
12.50%
20
3.00%
20.00%


(MBP) MAXIMUM BID PRICE:


200
200


Trees
Range
Woods


$872









VALUES USED FOR INCREMENTS ON SENSITIVITY ANALYSIS
-------------------------------------------------


(CC) BUYER'S DESIRED RATE OF RETURN AFTER TAXES
(n) BUYER'S PLANNING HORIZON (YEARS)
(ANI) EXPECTED ANNUAL NET RETURNS PER ACRE BEFORE TAXES
(GNI) EXPECTED ANNUAL RATE OF GROWTH IN NET RETURNS/ACRE
(MTR) BUYER'S MARGINAL INCOME TAX RATE
(DP) PROPORTION OF THE PURCHASE PRICE PAID DOWN
(IR) NOMINAL RATE OF INTEREST CHARGED ON MORTGAGE
(t) AMORTIZATION PERIOD OF THE MORTGAGE (YEARS)
(INF) EXPECTED ANNUAL RATE OF INFLATION ON LAND VALUES
(T) CAPITAL GAINS TAX RATE IN YEAR LAND IS TO BE SOLD


DEFAULT

1.00%
1
$15
1.00%
5.00%
4.00%
1.00%
2
1.00%
2.00%








TABLE 1.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE BUYER'S DESIRED RATE OF RETURN


RATE OF
RETURN

5.00%
6.00%
7.00%
8.00%
9.00%
* 10.00%
11.00%
12.00%
13.00%
14.00%
15.00%


MAXIMUM
BID PRICE

1,269
1,166
1,076
999
931
872
820
775
735
700
669


BID PRICE SENSITIVITY
CHANGE CHANGE S.I.
($) (%)


397
294
204
127
59
0
(52)
(97)
(137)
(172)
(203)


45.58%
33.72%
23.44%
14.52%
6.77%
0.00%
-5.92%
-11.11%
-15.69%
-19.74%
-23.33%


0.912
0.843
0.781
0.726
0.677
0.000
-0.592
-0.556
-0.523
-0.493
-0.467


TABLE 2.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE BUYER'S PLANNING HORIZON


PLANNING
HORIZON


MAXIMUM
BID PRICE


949
931
915
899
885
872
860
848
837
828
818


BID PRICE SENSITIVITY
CHANGE CHANGE S.I.
($) (%)


77
60
43
28
13
0
(12)
(24)
(34)
(44)
(54)


8.88%
6.83%
4.92%
3.16%
1.52%
0.00%
-1.41%
-2.73%
-3.95%
-5.08%
-6.14%


0.444
0.427
0.410
0.395
0.380
0.000
-0.353
-0.341
-0.329
-0.318
-0.307









TABLE 3. MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE EXPECTED ANNUAL NET RETURNS BEFORE TAXES


MAXIMUM
BID PRICE

252
376
500
624
748
872
996
1,120
1,244
1,368
1,492


BID PRICE S
CHANGE CHAN
($) (%


(620)
(496)
(372)
(248)
(124)
0
124
248
372
496
620


-71
-56
-42
-28
-14
0
14
28
42
56
71


SENSITIVITY
GE S.I.
)


.15%
.92%
.69%
.46%
.23%
00%
23%
46%
69%
92%
15%


-0.806
-0.806
-0.806
-0.806
-0.806
0.000
0.806
0.806
0.806
0.806
0.806


TABLE 4.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE EXPECTED ANNUAL RATE OF GROWTH IN NET RETI


RATE OF
GROWTH

-3.00%
-2.00%
-1.00%
0.00%
1.00%
* 2.00%
3.00%
4.00%
5.00%
6.00%
7.00%


MAXIMUM
BID PRICE

633
670
712
759
812
872
940
1,018
1,107
1,209
1,326


BID PRICE S4
CHANGE CHAN
($) (%)

(239) -27
(202) -23
(160) -18.
(113) -12.
(60) -6.
0 0.
68 7.
146 16.
235 26.
337 38.
454 52.


INSITIVITY
IE S.I.


42%
16%
37%
99%
90%
00%
84%
76%
96%
63%
03%


-0.110
-0.116
-0.122
-0.130
-0.138
0.000
0.157
0.168
0.180
0.193
0.208


NET
RETURNS

10
25
40
55
70
85
100
115
130
145
160


IRNS








TABLE 5.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE BUYER'S MARGINAL INCOME TAX RATE


MARGINAL
TAX RATE

5.00%
10.00%
15.00%
20.00%
25.00%
* 30.00%
35.00%
40.00%
45.00%
50.00%
55.00%


MAXIMUM
BID PRICE

952
938
923
907
890
872
852
831
808
784
757


BID PRICE SENSITIVITY
CHANGE CHANGE S.I.
($) (%)


80 9.16%
66 7.56%
51 5.85%
35 4.03%
18 2.09%
-0 0.00%
(20) -2.24%
(41) -4.66%
(63) -7.27%
(88) -10.10%
(115) -13.18%


0.110
0.113
0.117
0.121
0.125
0.000
-0.135
-0.140
-0.145
-0.152
-0.158


TABLE 6.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE DOWN PAYMENT PERCENT


DOWN
PYMNT RATE

5.00%
9.00%
13.00%
17.00%
21.00%
* 25.00%
29.00%
33.00%
37.00%
41.00%
45.00%


MAXIMUM
BID PRICE

889
885
882
879
875
872
869
865
862
859
855


BID PRICE SENSITIVITY
CHANGE CHANGE S.I.
($) (%)

17 1.96% 0.024
14 1.56% 0.024
10 1.16% 0.024
7 0.77% 0.024
3 0.39% 0.024
0 0.00% 0.000
(3) -0.38% -0.024
(7) -0.76% -0.024
(10) -1.14% -0.024
(13) -1.51% -0.024
(16) -1.88% -0.024









TABLE 7.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE INTEREST RATES CHARGED ON THE MORTGAGE


INTEREST
RATE


MAXIMUM
BID PRICE


BID PRICE
CHANGE CHAl
($) (


SENSITIVITY
GE S.I.
)


7.50%
8.50%
9.50%
10.50%
11.50%
* 12.50%
13.50%
14.50%
15.50%
16.50%
17.50%


TABLE 8.


MAXIMUM BID PRICE RESULTING FROM VARIOUS
AMORTIZATION PERIODS OF THE MORTGAGE


MAXIMUM
BID PRICE


849
854
859
864
868
872
875
878
881
884
886


BID PRICE S
CHANGE CHAN
($) (%

(23) -2
(18) -2
(13) -1
(8) -0
(4) -0
0 0.
3 0.
7 0.
9 1.
12 1.
14 1.


:NSITIVITY
(E S.I.


63%
01%
44%
92%
44%
00%
39%
75%
06%
34%
59%


-0.053
-0.050
-0.048
-0.046
-0.044
0.000
0.039
0.037
0.035
0.033
0.032


1,069
1,026
984
945
907
872
838
807
777
749
722


197
154
112
73
35
0
(34)
(65)
(95)
(123)
(150)


22
17
12
8
4
0
-3
-7
-10
-14
-17


.65%
.65%
.88%
.36%
.06%
.00%
.84%
.47%
.90%
13%
.18%


0.566
0.551
0.537
0.522
0.508
0.000
-0.480
-0.467
-0.454
-0.442
-0.430


AMORT-
IZATION








TABLE 9.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE EXPECTED ANNUAL RATE OF INFLATION ON LAND VALUES


INFLATION
RATE

-2.00%
-1.00%
.00%
1.00%
2.00%
* 3.00%
4.00%
5.00%
6.00%
7.00%
8.00%


MAXIMUM
BID PRICE

752
766
784
806
835
872
918
976
1,049
1,141
1,255


BID PRICE SENSITIVITY
CHANGE CHANGE S.I.
($) (%)


(120) -13.78%
(106) -12.17%
(88) -10.12%
(65) -7.50%
(37) -4.19%
0 0.00%
46 5.29%
104 11.95%
177 20.33%
269 30.83%
383 43.97%


-0.083
-0.091
-0.101
-0.113
-0.126
0.000
0.159
0.179
0.203
0.231
0.264


TABLE 10.


MAXIMUM BID PRICE RESULTING FROM VARIOUS LEVELS
OF THE CAPITAL GAINS TAX RATE


CAPITAL
GAINS RATE

10.00%
12.00%
14.00%
16.00%
18.00%
* 20.00%
22.00%
24.00%
26.00%
28.00%
30.00%


MAXIMUM
BID PRICE


884
882
879
877
874
872
869
867
864
862
859


BID PRICE SENSITIVITY
CHANGE CHANGE S.I.
($) (%)


5
2
0
(2)
(5)
(7)
(10)
(12)


1.40%
1.12%
0.84%
0.56%
0.28%
0.00%
-0.28%
-0.57%
-0.85%
-1.14%
-1.43%


0.028
0.028
0.028
0.028
0.028
0.000
-0.028
-0.028
-0.028
-0.028
-0.029










TABLE 11.



NET
RETURNS

115
100
85
70
55













TABLE 12.



INTEREST
RATE

14.50%
13.50%
12.50%
11.50%
10.50%


MAXIMUM BID PRICES RESULTING FROM A CHANGE IN
EXPECTED ANNUAL NET RETURNS BEFORE TAXES and
THE INFLATION RATE ON LAND VALUES



-------------------------------------n -----
1,055 1,083 1,120 1,166 1 224
931 959 996 1,042 1,100
806 835 872 918 976
682 711 748 794 852
558 587 624 670 728
-------------------------------------- ---------
1.00% 2.00% 3.00% 4.00% 5.00%

INFLATION









MAXIMUM BID PRICES RESULTING FROM A CHANGE N
THE INTEREST RATE CHARGED ON THE MORTGAGE ald
THE INFLATION RATE ON LAND VALUES



;--------------------*.->* ----.- ------.--- -----------
S746 773 807 849 903
775 803 838 883 939
806 835 872 918 976
S839 869 907 955 1,016
874 905 945 995 1,058.
Wm-- m w---- m -------m----mmmmm----m ---*MMWm- ---- -
1.00% 2.00% 3.00% 4.00% 5.00%

INFLATION
















36








TABLE 13.


MAXIMUM BID PRICES RESULTING FROM A CHANGE IN
THE INFLATION RATE ON LAND VALUES and
THE BUYER'S PLANNING HORIZON


INFLATION


5.00%
4.00%
3.00%
2.00%
1.00%


- - 98 -- ---------------------81------ 9 6 ------ 9 1---------- ---aaaaaaa
986 981 976 971 966 |
927 922 918 914 910
879 87.5 872 869 866 -
840 838 835 833 831
809 807 806 806 805
23 24 25 26 27
23 24 25 26 27


PLANNING HORIZON


TABLE 14.


MAXIMUM BID PRICES RESULTING FROM A CHANGE IN
THE INTEREST RATE CHARGED ON THE MORTGAGE and
THE AMORTIZATION PERIOD OF THE MORTGAGE


INTEREST
RATE


14.50%
13.50%
12.50%
11.50%
10.50%


808
835
864
894
926


807
837
868
901
936


807
838
872
907
945


806
840
875
913
953


----------- ---------- ---------- ---------- ------e -


AMORTIZATION PERIOD


806.
841
878
918
961









TABLE 15. MAXIMUM BID PRICES RESULTING FROM A CHANGE IN
THE DOWN PAYMENT PERCENT and
THE INTEREST RATE CHARGED ON THE MORTGAGE

DOWN PAYMENT
PERCENT

33.00% 929 896 865 836 807
29.00% 1 937 902 869 837 807
25.00% 945 907 872 838 1807
21.00% 953 913 875 840 806 I
17.00% I 961 919 879 841 806 I
----------.--------o------------------------ --------
10.50% 11.50% 12.50% 13.50% 114.50%

INTEREST RATE









TABLE 16. MAXIMUM BID PRICES RESULTING FROM A CHANGE I
THE EXPECTED ANNUAL NET RETURNS BEFORE TAXES and
THE PERCENT OF GROWTH IN NET RETURNS

NET
RETURNS

115 I 967 1,039 1,120 1,212 1,318
100 863 925 996 1,076 1,168
85 759 812 872 940 1,018
70 1 655 698 748 804 868
55 550 585 624 668 718
---------- ------------------------- -----------
0.00% 1.00% 2.00% 3.00% 4.00%

GROWTH















38







MAXIMUM BID PRICE
Desired Rate of Return


0.6 1 1 IiI 1 1 I
5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00% 12.00 1 3.00 4.00% 15.00
I RATE OF RETURN


MAXIMUM BID PRICE
Planning Horizon


20 21 22 23 24 25 26
PLANNING HORIZON
39


27 28 29 30


w





Xm
<2"
0
U


1.1






0.9


0.8


950
940
930
920
910
900
890
880
870
860
850
840
830
820
810









1.3 -


1.2 -
40
0 1.1 -

j <-

g 0.9-

0.8-


0.7 -


MAXIMUM BID PRICE
Expected Rate of Growth In Net Returns


-3.003-2.00%-1.00% 0.00% 1.00% 2.00X 3.003 4.00% 5.009 6.0 N
RATE OF GROWTH


MAXIMUM BID PRICE
Expeoted Annual Net Returns


* II


25 40 55 70 85 100
NET RETURNS
40


115 130 45
115 130 45


1


./


w
U-%
rO
iL
0
S0
=)


1.0 -
1.4
1.3-
1.2 -
1.1
1
0.9
0.8
0.7
0.6-
0.5
0.4
0.3
0.2 -
lC


J


I.


0







MAXIMUM BID PRICE
Down Payment Rate
890 -
888-
886 -
884 -
882 -
,% 880 -
4*

878 "
. 874 -
S 872 -
870
888 -
866 -

2 8864 -
882 -
860-
880 -

858-

854-
5.00 9.00% 13.005 17.00%21.00% 25.00%29.00 33.00 37.00%41.00% 45.00%
DOWN PAYMENT RATE



MAXIMUM -BID PRICE
Buyers Marginal Income Tax Rate

950
940
930
920-
910
S900-
8 90
880
| 870-
860
850-
S840
830
x 820
S 810-
800-
790
780
770
760

5.00Q 10.00% 15.00520.00%25.00X 30.00 35.005 40.00 45.00 50.00 55.005
MARGINAL TAX RATE
41






LREDOCJMENT
MAXIMUM BID PRICE M
Amortization Period of Mortgage
go90









865-
880 -

x 875-

. 870 -



X 880 -

855-

850 -


10 12 14 16 18 20 22 24 26 28 30
AMORTIZATION PERIOD



MAXIMUM BID PRICE
Interest Rate Charge On Mortgage
1.1

1.05-


1-

uLu,-, O.95
0.95-


0
0.85 -

S 0.8-

0.75-

0.7 i i i
7.50% 8.50I 9.50% 10.506 1 1.50% 12.50s 1 3.50s 14.50 15.50S 1 6.50o 17.50%
INTEREST RATE







MAXIMUM BID PRICE
Capital Gains Tax Rate


3 12b2 0437688a 5


886
884 4
882 -
880-
878 -
876-
874-
872-
870 -
868-
866-
864
862
880
858
1 0.00%1 2.00%1 4.00%1 6.00%1 8.00%20.00%22.00%24.00?%26.00%28.00?%30.00o
CAPITAL GAINS TAX RATE


LIBRARY


MAXIMUM BID
Annual Rate of Inflation on


PRICE
Land Values


0.7 -i
-2.00r-1.00 .00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
INFLATION RATE ON LAND VALUES


h4




































































This publication was produced at a cost of $326.00, or 1.72 cents per copy, to inform potential users
how to use the LAND-BID microcomputer program.


COOPERATIVE EXTENSION SERVICE, UNIVERSITY OF FLORIDA, INSTITUTE OF FOOD AND AGRICULTURAL SCIENCES, K.R. Tefertiller,
director, in cooperation with the United States Department of Agriculture, publishes this information to further the purpose of the May 8 and
June 30,1914 Acts of Congress; and is authorized to provide research, educational information and other services only to individuals and institu-
tons that function without regard to race, color, sex or national origin. Single copies of Extension publications (excluding 4-H and Youth publica-
tions) are available free to Florida residents from County Extension Offices. Information on bulk rates or copies for out-of-state purchasers is
available from C.M. Hinton, Publications Distribution Center, IFAS Building 664, University of Florida, Gainesville, Florida 32611. Before publicizing this publication,
editors should contact this address to determine availability.




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