Machinery Costs

[Bossfarmer]

depreciating assets are never an investment

Land is

 

[Clive]

Im assuming the tractor is bought and paid for, im currently getting over 5% for money in the bank why would i take 40k of that out to buy a more expensive brand tractor?

our combine is financed at circa 3.5% …… as you say money in the bank can get 5% and there are plenty places where you can get bigger returns than that

financing a machine can make sense even if you have cash to buy …….. it certainly has done over the last decade of VERY cheap money

 

[Clive]

Land is

i’m yet to buy any land that depreciates

 

[Norfolk Hill Farmer]

ok fair enough if your just going to run a tractor for 5 years then retire but if the land was for 25 years and he traded in that tractor after 5 years for another how would you work out the running cost for A tractor with your example?

because you havent taken inflation into account over the 5 years theres going to be a big jump in cost for the next tractor but if you calculate the next tractor the same way you will again get a nice low running cost figure but a big chunk of cashflow missing unaccounted for when you buy the next one

i.e your getting 30k depreciation on each tractor but in reality its 60k to change to the next one with only 30k accounted for do you see the issue?

Must admit I haven’t fully got my head round it ,but I sort of get what your getting at, but as I see it ,because of inflation new tractors are always going to be more money every time you change, but 5 year old tractors are always going to be less money than they where purchased for ,so aren’t going to help much keeping up with the new price. It’s the earning capacity of the tractor that needs to “ inflate” to allow it to be bought.

 

[Rich_ard]

Must admit I haven’t fully got my head round it ,but I sort of get what your getting at, but as I see it ,because of inflation new tractors are always going to be more money every time you change, but 5 year old tractors are always going to be less money than they where purchased for ,so aren’t going to help much keeping up with the new price. It’s the earning capacity of the tractor that needs to “ inflate” to allow it to be bought.

It's "opportunity cost" he's is on about. What the money could have made if spent in another way, or invested.