Accounting profit from farming an additional year

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Reference no: EM1311920

Q. Elucidate how Bowen is a large cotton farmer. The land also machinery he owns has a current marketplace value of $4,000,000. Bowen owes his local bank $3,000,000. Last year Bowen sold $5,000,000 worth of cotton. His variable operating costs were $4,500,000 also his depreciation on machinery was $60,000. Interest on the bank loan was $300,000. If Bowen employed for another farmer or a local manufacturer, his annual income would be about $50,000. Bowen can invest at 10 percent (%) any net funds which would be derived from the sale of the farm (sale price less debt payoff). He projects that his costs also revenue will be similar this year if he continues farming.

a. Illustrate what is Bowen's accounting profit from farming an additional year?

b. Illustrate what is Bowen's economic profit from farming an additional year? Illustrate what should he do? Elucidate.

Reference no: EM1311920

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