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Permanent link (DOI): https://doi.org/10.7939/R3PG1HP4C

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Reducing Investment Risk in Tractors and Combines with Improved Terminal Asset Value Forecasts Open Access

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Author or creator
Unterschultz, Jim
Mumey, Glen
Additional contributors
Subject/Keyword
economic depreciation
farm machinery
risk management
farm management
Type of item
Report
Language
English
Place
Time
Description
Secondary asset market data for combines and tractors used to estimate and separate out historical economic depreciation, embodied technological change and time value change. Combines and tractors generally exhibit constant geometric economic depreciation on a year to year basis. Depreciation rates vary by manufacturer. Farm investors can use these manufacturer specific depreciation rates reported here to estimate terminal asset values. The study found significant seasonal differences in machinery depreciation rates. A major source of error in forecasting terminal asset values comes from changes related to time. There is a predictable time component to the constant quality asset index that has not been investigated in previous studies. Unanticipated shocks to demand should be followed by price reversion to long-run average manufacturing costs as industry capacity adjusts to demand. This reversion component is predicable. Investment risk over longer planning horizons may be lower when both depreciation coefficients and time component estimates are employed.
Date created
1996
DOI
doi:10.7939/R3PG1HP4C
License information
Creative Commons Attribution-Non-Commercial-No Derivatives 3.0 Unported
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2014-04-29T18:08:20.223+00:00
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File size: 125214
Last modified: 2015:10:12 19:14:12-06:00
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File title: SP-96-02.DOC
File author: Department of Rural Economy
Page count: 40
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