howard bowen is a large-scale cotton farmer. the land and machinery he owns has a current market value of $12 million. bowen owes his local bank $9 million. last year bowen sold $11 million worth of cotton. his variable operating costs were $9 million; accounting depreciation was $40,000, although the actual decline in value of bowen's machinery was $60,000 last year. bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. interest on his bank loan was $400,000. if bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. bowen can invest any funds that would be derived if the farm were sold to earn 10% annually. (ignore taxes.)
