11A Farm Firm Model of Machinery Investment Decisions. 11

This article presents a multiperiod mixed integer programming (MMIP) model of optimal machinery decisions. Infinite horizon valuation models of replacement and other investment situations are conceptualized in the context of a finite programming model. Dual properties of the MMIP model are used to identify and value opportunity costs involved in investment decisions of farm machinery. The interdependent nature of investment and production relationships necessary for solving these values emphasizes the importance of a holistic firm perspective in analyzing farm machinery investment strategies. An empirical situation is used to demonstrate model application. Key words: ending conditions, investment, multiperiod mixed integer programming, replacement. Conventional capital theory criteria for evaluating capital investments are net present value (NPV) or, alternatively, net future value (NFV) models (Lutz and Lutz, Hirshleifer). These criteria along with related decision rules theoretically ensure selection of investments which will contribute the largest gain to the firm's value. NPV (NFV) analysis is standard methodology in agricultural economics for as-sessing capital investments such as farm trac-tors and other machinery (Barry, Hopkin, and Baker; Boehlje and Eidman; Penson and Lins). An NPV (NFV) model evaluates an invest-ment opportunity by considering time-value aspects of its expected costs and returns over its expected life. Usually the NPV (NFV) model is a "partial budgeting " approach to the capital budgeting problem. Conceptually, this implies that expected changes in all costs and returns of the firm which result from the investment should be included. However, difficulties arise in appropriately implementing an NPV (NFV) model of farm machinery in-vestment because of problems in identifyin