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FOREST MANAGEMENT WORKSHOP MANUAL

D. USE OF CREDIT WORKSHEET

T. R. Farmer owns 500 acres of woodland worth $100,000. He has paid off the mortgage on this tract except for $10,000 which he still owes the bank. He has a chance to buy an adjoining woodland tract of 100 acres. The price for this tract of woodland would be $15,000. Mr. Farmer expects an annual land inflation rate of 10% for the years ahead. However, he can expect a cash income above expenses of only $400 per year from this 100 acre tract. The local Land Bank will loan up to 70% of land value at 9% annual interest for 40 years.


a.  What is Farmer's present equity?  $_____________________.
b.  How much down payment on the 100 acre tract would the Land 
    Bank require?  $___________________.
c.  What is Farmer's credit limit?  $_________________________.
d.  To buy the tract, how much total debt would he assume?
    $___________________.
e.  With an annual net cash income of $1,550 from the larger 
    tract, how much cash would be available for payments?
    $_____________________.
f.  Farmer's annual payment on his debt load would be?
    $_____________________.
g.  How much could he afford to pay for the 100 acres and expect 
    to meet annual mortgage payments?  $___________________.
h.  If Farmer has a savings account at his Savings & Loan of 
    $20,000 on which he is being paid 5-3/4% interest, what 
    should he do?  ____________________________________________.

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Last revised September 3, 1995.