Grennel Farm

In 2006 Denise Grey was notified by a lawyer that she got the ownership of a 2000 acre wheat
farm in Iowa from her recently deceased uncle. Grey was an assistant vice president in the
consumer credit department of a large New York bank. Grey had to decide whether to sell the
farm or keep the farm as an investment. All the farm’s earnings were withdrawn by Jeremiah
Grennel in the last few years in order to continue the lifestyle to which he had become
accustomed in Florida. Also the data of 2005 did not mention any monetary numbers for 2005’s
total revenue or closing inventory. Grennel had to understand the revenues based on three
alternate methods.

Assuming Grey agrees that the combination of the production method of revenue recognition and
the $2.22 million land valuation best serve her appraisal purposes, then in 2005 we have $323,370
net income on an owner’s equity investment of $2,482,100 ($637,100 plus $1,845,000 write-up of
land), or a 13 percent before-tax return on investment. When one considers future appreciation of
the land, this may well be a better investment than Grey would be able to make with the proceeds
from selling the farm.