Mba 540 Chapter 8 Case Study

597 WordsMar 29, 20153 Pages
Leaving New York for the Farmlands Scott Albert MBA-540-MBOL7 03/29/2015 To Farm or not to Farm There is a major difference from being an investment banker to running a farm. The colleagues are giving some good advise in that it may be a great business opportunity, but they are assuming that the price of farmland is going to increase drastically due to the demand of corn to fuel plants expected to soar. There are a couple of factors though that the colleagues are not taking into consideration Competition and Alternatives Even if entry is limited, firms within an industry are not immune to outside competition (Brickley, Smith, Zimmerman, 2009, p. 255). The advise given by the colleagues is sound, but without a true understanding of the how running a farm works, investing right into farmland may not be wise. There are going to be many competitors out there, and the goal of living in a peaceful environment may not be attainable. What also must be taken into consideration is that corn-based ethanol is not the only alternative to gasoline. There are in fact several alternatives including biodiesel, natural gas, propane, hydrogen, and electricity (fueleconomy.gov, 2015). What if the government decides to back one of the other alternatives instead? What if it is discovered that another alternative is out there that hasn’t even been considered yet? There are a lot of questions that need to be taken into consideration before just jumping into purchasing the land. Additional Costs One thing that needs to be considered is if the price being asked for the land is a fair amount. The web search found 80 acres of farmland in Illinois for $10,000/acre, which comes to $800,000, but studies show that prime farmland in central Illinois is selling for $5,000/acre (Davey, 2007, para. 8). One has to consider why the farmland found is double the current going rate for land in

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