The Incompatibility of the Average Investment Method for Calculating Interest Costs with the Principle of Alternative Opportunities

Arthur J. Walrath

Journal of Agricultural and Applied Economics, 1973, vol. 5, issue 1, 181-185

Abstract: “The rate of interest charged should be … the amount the money could earn in an alternative investment. Interest is commonly charged at 6 percent on the average value of the machinery. …” This is a quotation taken from a bulletin published in 1965. Similar statements can be found in many publications. That bulletin has recently been revised. In the revision, the first part of that statement is still recognized, but the average investment method is not used to calculate interest costs.In the first sentence, the principle of alternative opportunities is accepted, i.e., the minimum acceptable rate of return is that which the investor can obtain in an alternative investment that he would be willing to make. In general, economists agree that this is the rate that should be used in analyzing investment opportunities.

Date: 1973
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jagaec:v:5:y:1973:i:01:p:181-185_01

Access Statistics for this article

More articles in Journal of Agricultural and Applied Economics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().