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Choice of Depreciation Methods for Farm Firms

Author

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  • Wesley N. Musser
  • Bernard V. Tew
  • Fred C. White

Abstract

Accelerated depreciation methods are usually considered to increase the present value of after-tax cash flows for farm firms compared to straight line methods. Review of the theoretical foundations of this conclusion indicates that it requires an assumption of constant marginal income tax rates, which is inappropriate for many farm firms. Numerical analysis of a more general theoretical model and a detailed capital budgeting example both indicate that straight line methods are preferred with income tax rates below maximum levels and/or lower discount rates. General recommendations on depreciation methods are therefore impossible.

Suggested Citation

  • Wesley N. Musser & Bernard V. Tew & Fred C. White, 1986. "Choice of Depreciation Methods for Farm Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(4), pages 980-989.
    • Handle: RePEc:oup:ajagec:v:68:y:1986:i:4:p:980-989.
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    File URL: http://hdl.handle.net/10.2307/1242144
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    Cited by:

    1. Lescot, Jean-Marie & Rousset, Sylvain & Souville, Genevieve, 2011. "Assessing Investment in Precision Farming for Reducing Pesticide Use in French Viticulture," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114387, European Association of Agricultural Economists.
    2. Ivan Herranz-Matey & Luis Ruiz-Garcia, 2023. "A New Method and Model for the Estimation of Residual Value of Agricultural Tractors," Agriculture, MDPI, vol. 13(2), pages 1-20, February.

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