A COMPUTERIZED FARM LIQUIDATION PLANNING MODEL

The purpose of this study was to construct a decision making model that would provide guidance in planning the income tax and investment strategy to farmers and ranchers who voluntarily sell their business. Farms are becoming larger and farmland more valuable, consequently those who liquidate their units are faced with some very significant tax and investment decisions. There appeared a need therefore of a comprehensive, relatively compact, and usable model designed to evaluate consumption, investment, disinvestment, taxation, and the effects of inflation on income and equity over time. This was to be done with the objective of maximizing discounted after tax cash flows subject to the risk preferences of the seller. A risk constrained investment portfolio selection device (MOTAD) was used to provide financial data to a polyperiod linear programming procedure. These programs were linked directly and driven by the overall objective function described in the preceding paragraph. When using MOTAD risk must be defined as variation in returns over time. The program then selects combinations of the investment alternatives included in the program that will minimize risk (variation) at various levels of income. This procedure was reversed in this study such that the portfolios selected by the model maximized income at certain selected levels of risk. Through a series of linkages the financial data on the selected portfolio was transmitted to the polyperiod matrix for evaluation over a period of time in the future. For testing purposes the investment alternatives built into the model were restricted to the common stock of certain companies selected from those listed on the New York Stock Exchange. The model is so designed however, that any investment opportunity or business enterprise could be included provided that the market value of, and the cash flows from them could be generated for at least fifteen years. The model is designed to compare the financial consequences of a number of farm sale planning alternatives. For example, a cash sale as opposed to an installment land contract. It is not intended as a means of evaluating a single plan standing along. The format presented in this study may be adapted to any situation where a number of alternative activities are to be evaluated in combination over time, subject to restrictions specified by the investigator. All the activities and restrictions are entered into the model in only one location thus making editing and multiple runs a relatively quick and simple procedure