Premium
Choice of Depreciation Methods for Farm Firms
Author(s) -
Musser Wesley N.,
Tew Bernard V.,
White Fred C.
Publication year - 1986
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242144
Subject(s) - depreciation (economics) , economics , cash flow , capital (architecture) , capital income , monetary economics , constant (computer programming) , value (mathematics) , microeconomics , econometrics , public economics , tax reform , capital formation , international taxation , finance , mathematics , computer science , programming language , profit (economics) , statistics , archaeology , financial capital , history
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.