Choice of Depreciation Methods for Farm Firms

Wesley Musser, Bernard V. Tew and Fred C. White

American Journal of Agricultural Economics, 1986, vol. 68, issue 4, 980-989

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.

Date: 1986
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:68:y:1986:i:4:p:980-989.

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