Effects of Tax Depreciation Policy and Investment Incentives on Optimal Equipment Replacement Decisions

Chisholm, Anthony

doi:10.2307/1239307

Cited by 41 publications

(15 citation statements)

References 9 publications

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“…Perrin focussed mainly on self-replacement and replacement of a single defender with a single challenger asset. Perrin did not address the issue of a multiple asset defender nor the complications that income taxes introduce as was examined in Chisholm (1974), Batterham and Fraser (1995), and Kay and Rister (1976).…”

Section: Asset Replacement Decisions By Farmersmentioning

confidence: 99%

Optimal replacement age of a conventional cotton harvester system

Ibendahl

Farrell

Spurlock

et al. 2014

Agricultural Finance Review

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Purpose -The cotton industry has seen many technological advances throughout history that have greatly decreased the number of labor hours required to produce a bale of cotton. The latest advancement is a harvesting system that replaces the harvester, boll buggy, and module builder with a single machine. This is an asset replacement decision where there are multiple assets being replaced but the old technology (the defender assets) may all have different remaining lives and optimal lifespans. The purpose of this paper is to find the optimal time to replace the multiple defender assets with a single challenger asset (the improved technology). The goal is to determine if the ages of the boll buggy and the module builder affect the replacement age of the conventional picker. Design/methodology/approach -The paper extends the Perrin model to allow for multiple defender assets. Findings -The paper finds that the supporting assets do sometimes affect the decision to replace a conventional cotton picker. If the supporting assets are newer, then the replacement decision may be delayed and if the supporting assets are older then the replacement decision may be accelerated. Field efficiency can affect the decision as well. Originality/value -While the Perrin model has been used extensively, the authors believe the application to a multiple asset defender is unique. Although this type of replacement decision is not common, there could be other applications as new technology is introduced on the farm.

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Section: Asset Replacement Decisions By Farmersmentioning

confidence: 99%

Optimal replacement age of a conventional cotton harvester system

Ibendahl

Farrell

Spurlock

et al. 2014

Agricultural Finance Review

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“…Using duality, Chisholm (1974) and Reid and Bradford (1987) minimized the stream of costs associated with machinery to determine the optimal time to replace machinery, which can be defined as:…”

Section: Theoretical Modelmentioning

confidence: 99%

“…The agricultural producer chooses the replacement age that maximizes the present value of the cash stream from the asset (Barry and Ellinger, 2012). Tax policy alters producer's decision-making process as outlined in traditional investment theory which states that producers use their current machinery until the marginal cost of holding that machine exceeds the amortized cost (Chisholm, 1974). The Section 179 tax deduction changes the investment decision by reducing the after-tax cost of machinery ownership, which encourages new purchases and/or trading machinery sooner than without the deduction.…”

Section: Introductionmentioning

confidence: 99%

“…Chisholm (1974) evaluated the effect of tax policy on machinery investment decisions in Australia to find that tax policy did not affect investment, but rather investment allowances and the level of depreciation played a role. Kay and Rister (1976) commented on Chisholm's findings for the US tax system stating contrary to Chisholm, the first year depreciation and investment credit did affect the optimal replacement age of machinery.…”

Section: Introductionmentioning

confidence: 99%

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Impact of the Section 179 tax deduction on machinery investment

Hadrich

Larsen

Olson

2013

Agricultural Finance Review

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Purpose -The purposes of this paper are to determine the financial, structural, and tax policy factors that influence the probability of buying machinery and the intensity of the machinery purchases on North Dakota farming operations. Design/methodology/approach -A double hurdle model was used to estimate the two decisions: purchasing machinery and the intensity of the machinery purchase. Data were collected from the North Dakota Farm and Ranch Management Business Association Annual Summaries for 1993-2011. Findings -Results demonstrated that the tax incentive provided by Section 179 deduction had the largest positive effect on machinery purchases when compared to operating profit margin, leverage ratio, producer type, and experience of the principal operator of the farm. Originality/value -Section 179 deductions have changed substantially over the 19-year period studied and have not been analyzed in previous machinery investment work. This analysis puts a numerical value on the effect of Section 179 deductions over time and demonstrates the large effect tax incentives have on machinery purchase decisions and levels.

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“…However, they all have serious shortcomings especially in respect of the time value of money. As indicated above, money has a certain time value which these methods ignore, and they are therefore not recommended or discussed in relation to capital investment (Chrisholm, 1976;1986).…”

Section: Gross Margin Analysis: a Partial Solutionmentioning

confidence: 99%

ECONOMIC ASPECTS OF THE OPTIMUM REPLACEMENT OF SEEDLING TEA BY HIGHER YIELDING CLONAL VARIETIES / Ekonomiese aspekte van die optimum vervanging van saadtee deur hoër opbrengs kloonvariëteite

Botha

Zÿl

1992

Agrekon

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This article concentrates on the optimal replacement of seedling tea by higher yielding clonal varieties. A hypothetical 500ha tea estate under seedling tea is used for this purpose. Representative yields, revenues, costs and replacement data with respect to the hypothetical 500ha tea estate are discussed first. This is followed by a gross margin analysis. However, as this produces only partial answers which may be misleading, a whole farm approach to the replacement problem is subsequently taken. Dynamic linear programming is used to derive economically optimal replacement strategies over a 30 year planning horizon, given certain yield and price scenarios. Some conclusions are also drawn. UittrekselEkonomiese aspekte van die optimmn vervanging van saadtee deur boer opbrengs kloonvarieteite Hierdie artikel konsentreer op die optimale vervanging van saadtee deur hoer opbrengs kloonvarieteite.'n Hipotetiese SOOha teelandgoed word vir die doel gebruik. Verteenwoordigende opbrengste, inkomstes, kostes en vervangingsdata vir die hipotetiese SOOha teelandgoed is eerstens bespreek. Dit is gevolg deur 'n bruto marge-analise. Omrede dit egter slegs parsiele antwoorde verskaf wat misleidend mag wees, is 'n geheelplaasbenadering tot die vervangingsprobleem vervolgens geneem. Dinamiese lineere programmering is gebruik om ekonomies optimaIe vervangingstrategiee oor 'n 30 jaar beplanningshorison te bepaal vir sekere opbrengs-en prysscenario's, Sekere gevolgtrekkings is ook gemaak.

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Effects of Tax Depreciation Policy and Investment Incentives on Optimal Equipment Replacement Decisions

Cited by 41 publications

References 9 publications

Optimal replacement age of a conventional cotton harvester system

Optimal replacement age of a conventional cotton harvester system

Impact of the Section 179 tax deduction on machinery investment

ECONOMIC ASPECTS OF THE OPTIMUM REPLACEMENT OF SEEDLING TEA BY HIGHER YIELDING CLONAL VARIETIES / Ekonomiese aspekte van die optimum vervanging van saadtee deur hoër opbrengs kloonvariëteite

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