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A excerpt from Present Value Formulas for Calculating Maximum Bid Prices for Land with Applications … , Michigan SU, Ag. Econ. Delp., AER Report No. 407, MAR 1982, 35 pages

     Whether or not to purchase farmland can be one of the most difficult investment decisions confronting farm operators. Compared with other production inputs, land is purchased infrequently, usually in discrete units and involves a longterm financial obligation. The decision to purchase a parcel of farmland is crucial since only about 3 percent of all the farmland in the U.S. is transferred from one owner to another each year …
     Because land is traded infrequently and each parcel has a locational monopoly, an opportunity to purchase a particular tract may come along only once in a lifetime. So determining the maximum bid price one can offer for a parcel of land is critical. If a decision maker's bid price is significantly below the asking price, then he might lose the opportunity to purchase. On the other hand, if it is significantly above the true value, his offered price might put him in a difficult financial position. Therefore, finding accurate ways of estimating land values is important for those wishing to purchase land.

Summary and Conclusions
     Calculating the maximum bid price one can off er for land is important for applied decision makers. Making such a calculation may be complicated because of the many factors affecting the returns attributable to land. These may include inflation, taxes, uncertainty, and financial arrangements.
     In this paper, present value models of increasing complexity were introduced to demonstrate how maximum bid prices are calculated. Finally, hand held programmable computers were introduced to solve the model which included all the considerations discussed in this paper. The program and an input and output format were described in the paper and listed in Appendices A and B. Those wishing to check their models were provided a solved example.
     What the paper has provided, then, is a practical aid for those who make land investment decisions. But it is important to understand that it is only an aid. A successful decision maker will continue to find no substitute for good judgment.

Appendix A
Instructions for Using the Lee and Rask Program on the TI-59

Appendix B
A Listing of the Lee and Rask Maximum Bid Price and Cash Flow Program

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