Answer to Question #24278 in Economics of Enterprise for Mohamed Abdi mohamed

Question

Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a
current market value of $4 million. Bowen owes his local bank $3 million. Last year,
Bowen sold $5 million worth of cotton. His variable operating costs were $4.5 million;
accounting depreciation was $40,000, although the actual decline in value of Bowen’s
machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not
considered part of his variable operating costs. Interest on his bank loan was $400,000.
If Bowen worked for another farmer or a local manufacturer, his annual income would be
about $30,000. Bowen can invest any funds that would be derived, if the farm sold, to
earn 10 percent annually. (Ignore taxes.)