chapter22 - Farm Management Chapter 22 Machinery Management...

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Farm Management Chapter 22 Machinery Management
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farm management chapter 22 2 Chapter Outline Estimating Machinery Costs Examples of Machinery Cost Calculations Factors in Machinery Selection Alternatives for Acquiring Machinery Improving Machinery Efficiency
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farm management chapter 22 3 Chapter Objectives 1. To illustrate the importance of good machinery management 2. To identify the costs associated with machinery 3. To demonstrate procedures for calculating machinery costs 4. To discuss important factors in machinery selection 5. To compare owning, renting, leasing, and custom hiring 6. To present methods for increasing efficiency 7. To introduce factors that influence when machinery should be replaced
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farm management chapter 22 4 Estimating Machinery Costs Depreciation Interest Taxes Insurance Housing Leasing Repairs Fuel and lubrication Labor Custom hire or rental Other operating costs Ownership Costs Operating Costs
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farm management chapter 22 5 Reminder Straight Line Depreciation is (Original Cost- Salvage Value)/ Life Ownership Interest (Fixed Interest) Interest = Average Value X interest rate Average Value =(Cost + Salvage Value)/2
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farm management chapter 22 6 Table 22-1 Estimated Salvage Value as Percentage of New List Price Age of machine Tractor Tractor in years 80-149 HP 150 + HP Combine Baler Tillage Planter 1 68% 67% 70% 56% 61% 65% 2 62 59 59 50 54 60 3 57 54 51 46 49 56 4 53 49 45 42 45 53 5 49 45 40 39 42 50 6 46 42 36 37 39 48 7 44 39 32 34 36 46 8 41 36 29 32 34 44 9 39 34 26 30 31 42 10 37 32 22 28 30 40 11 35 30 21 27 28 39 12 34 28 18 25 26 38 Assumed hours of annual use 400 400 275 _ _ _ Source: ASAE Standards, 2001
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farm management chapter 22 7 Capital Recovery Capital recovery = [amortization factor x (beginning value – salvage value)] (interest rate x salvage value) + This is an alternative to calculating depreciation and interest.
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farm management chapter 22 8 Amortizing Factor Amortizing factors can be found in Appendix 1 of your textbook. It depends on interest rate and life. Example: 5% interest, 7 year life Amortizing factor is 0.17282
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farm management chapter 22 9 Comparison For a machine purchased for $52,000 with a $10,000 salvage value, and a 7 year life, Depreciation is $6,000 per year. Fixed Interest for this machine is $1550. The sum of depreciation and interest is $7550. Using the amortization factor, we get: .17282x42,000 + .05x10,000 = $7758
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farm management chapter 22 10 What is Capital Recovery? Capital recovery is the annual payment that would recover the initial investment lost through depreciation, plus interest on the investment. It relates to investment analysis and net present value. The capital recovery amount is usually a little higher than the sum of depreciation and interest because it accounts for the time value of money.
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farm management chapter 22 11 Repairs Annual repair costs will vary with use, machine type, age, preventative
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This note was uploaded on 11/15/2011 for the course AGEC 7100 taught by Professor Duffy,p during the Fall '08 term at Auburn University.

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chapter22 - Farm Management Chapter 22 Machinery Management...

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