- 6 



Inserting the numbers from Table 1 into the formula yields the 

 following (the full series is not presented for reasons of brevity) : 



PV = 



(-651) + (-174) + (-175) + (-62) + 

 (I+.IO) ,, . ...2^,. .^.3... ,„.4 



(205) + (515) 



(1+.10)''(1+.10)"(1+.10)'^(1 + .10)^(1+.10)^ 



+ _(1,269^ 



(I+.IO) 

 = $6,364 



For the above table, the present value of the cash flow over 

 30 years with an assumed rate of 10 percent is $6,364.00. 



The annualized value formula is as follows: 



A + PV X 



1 - 



(1 + i) 



30 



where : 



PV = present value 

 i = the interest rate 



Using the present value computed above and an interest rate of 

 10 percent, the formula becomes 



A = $6,364 



= $640 



.10 



1 - 



(I+.IO) 



TU 



Thus, if the interest rate used is 10 percent the above formu- 

 la yields an annualized net income of $640.00. If the existing 

 orchard yields a return net of cash expenses less than this amount, 



it should be replaced. 



Unfortunately, although this decision criteria. has the appear- 

 ance of a "rule of thumb" it has many difficulties. Obviously, 

 the technique requires a large amount of data. Some standardized 

 yield pattern over time must be assumed and prices 

 large number of years in the future. 



7 



estimated for a 

 The potential errors in the 



Rules of thumb are difficult to attain except in rather simple 

 decision situations. They almost always assume a number of fac- 

 tors to remain constant and, as a consequence, often are in error, 



