I had a most interesting discussion with a farmer. He had put grain on a storage ticket 20 years ago and was just cashing it in (retired now).
I did a little math on this deal.
Average price over the early 1980 was about $100/t. Let's suppose that his marginal tax rate was 25 % or it left an after tax price of $75/t.
Rule of 72 says you can divide an interest into 72 and that will give you the number of years it takes to double your money. Assuming a 7 % (likely achievable over the 20 years - I should maybe convert to after tax return but that is too complicated), he could have doubled his money every 10 years.
Over 20 years, he could have doubled his money twice meaning he would have had $300/t in his bank account (the price they would have to achieve to equal this investment).
This is an odd ball situation but is interesting none the less. How many of your neighbors include interest and storage in their pricing decisions?
I did a little math on this deal.
Average price over the early 1980 was about $100/t. Let's suppose that his marginal tax rate was 25 % or it left an after tax price of $75/t.
Rule of 72 says you can divide an interest into 72 and that will give you the number of years it takes to double your money. Assuming a 7 % (likely achievable over the 20 years - I should maybe convert to after tax return but that is too complicated), he could have doubled his money every 10 years.
Over 20 years, he could have doubled his money twice meaning he would have had $300/t in his bank account (the price they would have to achieve to equal this investment).
This is an odd ball situation but is interesting none the less. How many of your neighbors include interest and storage in their pricing decisions?
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