The NPV of a lemon tree
Andrew Leunig
Business Model Innovation Expert *** Strategy Facilitator *** Keynote Speaker *** Non Executive Director
We’ve got a lot of investment options - bonds, stocks, real estate and no end of fancy funds but sometimes there are great investment opportunities in our own backyard.
I’ve been buying a lot of lemons lately for drinking and for cooking.
There’s two things that annoy me about that - one is the cost - and the other thing is the hassle - I’ve got to store and manage a lemon inventory - and then there’s the effort (and time) of buying them.
How much easier just to just duck out the back to a lemon tree when needed. Just in time, just for me.
I’ve recently paid up to $1.70 for a lemon. Sometimes it’s about $1.25 (based on $6.99 per kg) - but for the sake of the discussion let’s say it’s $1.00. And that’s after tax money - so I need to earn $2.00 to fund each lemon.
You can get a lemon tree for about $32. They pretty much look after themselves - and all other things being equal - they grow and yield more each year.
After a few years I reckon you could produce 365 lemons a year.
That’s an annual pre-tax yield of $ 730 per year on a $32 investment.
A bank term deposit would currently yield 2.25 % for 12 months pre-tax.
The yield on my mature lemon tree is the same as having $32,444 in the bank !
Looking at it another way - assuming a 4% yield (post tax) and a 20 year life with a 5 year period to maturity the Net Present Value (NPV) = $3,668.
Make your own high return, low risk investment - plant a lemon tree.
Disclosure Notice : The author likes lemons and is not qualified to provide Investment Advice.
(But if you don’t trust me - consult your parents or your grandparents)
Coming soon : Why Investment Bankers grow their own herbs.
Good Design Ambassador 》 Mentor
8 年Andrew Leunig, both yours and Stephen Harvey 's comments were brilliant. Perhaps also brilliantly planned and executed collaboratively? Either way, bravo to both of you. By the way. Deb & I planted a lime tree because it has a much higher NPV and yield than lemon trees, and it sits outside the tax and levy imposts of the National Lemon CRC. PS, I hope you enjoyed your coffee at Cibo this morning Andrew.
Human Resources Manager at Pan Pharmaceuticals Ltd
8 年2016 I decided to venture into farming and do maize farming well paying. Great idea.
Strategic Assets Engineering Manager (RPEQ, CPEng, MAICD, IntPE(Aus))
8 年I did similar calculation (in my mind) during Christmas Holidays and planted 1 Mango tree in my front yard. We have one in the backyard grown up Mango tree (and planted by previous owner or someone prior) and we are benefiting without any specific investment for the same, so I thought to pass on to next owner (when I sell). Edible Street Verge or Editable Park Trees is something that has been going on for the past 20 years or so in our cities but is now capturing the public imagination such that the number of plantings is rapidly increasing. New edible park opens in West Seattle https://www.kiro7.com/news/local/new-edible-park-opens-in-west-seattle/422572929
I planted a lemon tree last year - looking forward to the $32,000
Accounting Navigator Now retired Partner at Deloitte Australia, National Wine Industry Leader
8 年Andrew, I suspect that you may have missed a few minor costs in getting the lemon [apparently Samsung have had a bad "lemon' experience lately] to market. By the time you have paid for council approval, EPA approval, got a licence from SA Lemon Licensing authority , paid your annual levy to the National Lemon Growers Federation, deduct the recently introduced Lemon Equalisation Tax [LET], discounted by 50% because the local retailer duopoly is importing Lemons from Orange Free State and loose border controls has meant those Lemons have entered the country infected with the Citrussucker bug. AS a consequence you will probably decide to get rid of your Lemon Tree but you will have to apply to the Local Significant Citrus Tree Board for permission and then battle the local Greens who believe all Lemon Trees must be saved By my calculations the Lemon Tree has a NPV of approx $(24,000) and that loss is not tax deductible as you only had 1 tree and therefore it is treated as a hobby by the ATO. The moral of the story - Always be careful of any investment and make sure you are not buying a "Lemon"