LectureII - AEB 6145 Agricultural Finance Professor Charles...

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AEB 6145 Agricultural Finance Professor Charles B. Moss 1 Lecture II: Single Investment I Review and Reformulation A. The classical investment analysis involves an initial investment and temporally separate returns. 1. In Monday’s lecture we had an initial investment {consumption forgone or potatoes not consumed}. This initial investment led to potatoes consumed in the next period. Time Revenue Cost 2. Another example is a machine used to make widgets. The initial cash flow is required to purchase the machine. It yields a flow of production to be sold in the future.
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AEB 6145 Agricultural Finance Professor Charles B. Moss 2 Time Revenue Cost 3. Question: How do you evaluate the investment? Are the cash flows in each period equally preferable? Typically, we think that consumers prefer current consumption to future consumption. a. However, for most individuals it is necessary to consume something in each period. It is possible that for a particular scenario, a consumer will have a negative interest rate.
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LectureII - AEB 6145 Agricultural Finance Professor Charles...

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