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

Jim Unterschultz and Glen Mumey

No 24119, Staff Paper Series from University of Alberta, Department of Resource Economics and Environmental Sociology

Abstract: Secondary asset market data for combines and tractors are 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.

Keywords: Farm; Management (search for similar items in EconPapers)
Pages: 40
Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://ageconsearch.umn.edu/record/24119/files/sp960002.pdf (application/pdf)

Related works:
Journal Article: Reducing Investment Risk in Tractors and Combines with Improved Terminal Asset Value Forecasts (1996)
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:ags:ualbsp:24119

DOI: 10.22004/ag.econ.24119

Access Statistics for this paper

More papers in Staff Paper Series from University of Alberta, Department of Resource Economics and Environmental Sociology Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().