Evaluation of the Least Acquisition Cost of Farm Machinery

Farm machinery is one of the most capital demanding areas of a farm operation.The value of farm machinery and motor vehicles in the United States in 1969 was approximately $32.6 Billion, representing nearly 12 percent of the total assets of farmers.Efficient capital management is an essential element in a successful farm operation.With the increase in farm size and the adoption of labor saving, larger mechanized units, Nebraska farmers are left with limited amounts of short run capital available for yearly operating expenses.At the same time, farmers have been plagued with a substantial increase in interest rates since 1960.Even further alarming is that certain major lending agencies have restricted credit availability for intermediate term farm machinery financing, being more interested in short term lending. The primary objective of this study is to determine the least cost method of acquiring the long term use of farm machinery for Nebraska farmers with respect to the alternative financing methods of (1) leasing, (2) credit purchasing, and (3) cash purchasing.Secondary objectives of this study are as follows: a) To determine what is being offered to Nebraska farmers in terms of lease and credit plans, and possible future expectations of the utilization of leasing. b) To determine the effect of various depreciation methods (with purchase agreements) on cost of acquiring the long term use of farm machinery. c) To determine the effect of an operator’s tax bracket on cost of acquiring the long term use of farm machinery. d) To determine the effect of an operator’s opportunity cost of capital on the cost of the long term use of farm machinery. Advisor:Thomas L. Fre