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Author: admin | Category: Auto Car Loan Calculator | Date: 14.07.2016

Use this decision tool to find ownership and operator costs for transporting grain by wagon or truck.
Farm machinery costs can be divided into two categories: annual ownership costs, which occur regardless of machine use, and operating costs, which vary directly with the amount of machine use. Ownership costs (also called fixed costs) include depreciation, interest (opportunity cost), taxes, insurance, and housing and maintenance facilities.
Before an estimate of annual depreciation can be calculated, an economic life for the machine and a salvage value at the end of the economic life need to be specified. Salvage value is an estimate of the sale value of the machine at the end of its economic life. Estimates of the remaining value of tractors and other classes of farm machines as a percent of new list price are listed in Tables 1a and 1b. The appropriate values in Table 1 should be mul­tiplied by the current list price of a replacement machine of equivalent size and type, even if the actual machine was or will be purchased for less than list price. An example problem will be used throughout this publication to illustrate the calculations.
If you borrow money to buy a machine, the lender will determine the interest rate to charge. Inflation reduces the real cost of investing capi­tal in farm machinery, however, since loans can be repaid with cheaper dollars.
The joint costs of depreciation and interest can be calculated by using a capital recovery factor.
Table 2 shows capital recovery factors for various combinations of real interest rates and economic lives.
These three costs are usually much smaller than depreciation and interest, but they need to be con­sidered.
Insurance should be carried on farm machinery to allow for replacement in case of a disaster such as a fire or tornado. To simplify calculating TIH costs, they can be lumped together as 1 percent of the average value where property taxes are not significant.
The estimated costs of depreciation, interest, taxes, insurance, and housing are added together to find the total ownership cost. Operating costs (also called variable costs) in­clude repairs and maintenance, fuel, lubrication, and operator labor. The values in Table 3 show the relationship be­tween the sum of all repair costs for a machine and the total hours of use during its lifetime, based on historical repair data.
Because the tractor in the example will be used about 400 hours per year, it will have accumulated about 6,000 hours of operation by the end of its 15-year economic life (400 hours x 15 years = 6,000 hours).
Surveys indicate that total lubrication costs on most farms average about 15 percent of fuel costs. Because different size machines require different quantities of labor to accomplish such tasks as planting or harvesting, it is important to consider labor costs in machinery analysis. Actual hours of labor usually exceed field machine time by 10 to 20 percent, because of travel and the time required to lubricate and service machines. Different wage rates can be used for operations requiring different levels of operator skill.
After all costs have been estimated, the total ownership cost per hour can be added to the operating cost per hour to calculate total cost per hour to own and operate the machine.
Costs for implements or attachments that depend on tractor power are estimated in the same way as the example tractor, except that there are no fuel, lubrication, or labor costs involved. Costs for used machinery can be estimated by using the same procedure shown for new ma­chinery.
As an example of estimating costs for a used machine, assume you just bought a 25-foot chisel plow that was 6 years old for $16,000. The capital recovery factor for 8 years and a 5 percent real interest rate is .155 (Table 2). Now, using Table 3, note that the accumulated repair cost for a chisel plow after 600 hours is 14 percent of the new list price. When estimating future costs for a machine that you have already owned for several years, start with your best estimate of the current market value of the machine instead of its original pur­chase price, or use the salvage value factors in Table 1 to estimate its current value. Tractor costs must be added to the implement costs to determine the combined total cost per hour of operating the machine.

Finally, total cost per hour can be divided by the hourly work rate in acres per hour or tons per hour to calculate the total cost per acre or per ton. The hourly work rate or field capacity of an implement or self-propelled machine can be estimated from the effective width of the machine (in feet), its speed across the field (in miles per hour), and its field efficiency (in percent). AgDM Information File A3-24, Estimating Field Capacity of Farm Machines (PM 696), has typical accomplishment rates for different types and sizes of farm machines. Costs for operations involving self-propelled machines can be calculated by treating the self-propelled unit as a power unit, and the harvesting head or other attachment as an implement. The tax treatment of different methods of acquiring machine services is a major factor in evaluating machine costs. Depreciation for tax purposes is calculated quite differently from economic depreciation due to the actual decline in value of a machine. Specific rules and regulations on deductible costs and depreciation are discussed in the Farmer’s Tax Guide, published by the Internal Revenue Service. A worksheet for estimating machinery costs is provided, or Decision Tools (spreadsheet calculators) are also available from the Ag Decision Maker website, including the Machinery Cost Calculator and Grain Truck or Wagon Transportation Cost Calculator. Investors will want to look at the prospects of this rising bank stock to gauge whether it’s worth getting aboard.
But the bank also has a strong and growing investment banking division, although investors are more likely to think of the other Big Four Banks, Citigroup Inc (C), JPMorgan Chase & Co (JPM) or Bank of America Corp (BAC) as mainstays in the underwriting and trading business.
The main business of lending, though, should find an even better environment as the economy gets better. With business prospects on the rise, Wells Fargo as a well-managed bank should see loan quality hold steady or firm up as well. Still, after all, WFC stock is a bank stock, so it can’t be expected to grow at a torrid pace. As of this writing, Greg Sushinsky did not hold a position in any of the aforementioned securities. Larger ma­chines, new technology, higher prices for parts and new machinery, and higher energy prices have all caused machinery and power costs to rise in recent years. Making smart decisions about how to acquire machinery, when to trade, and how much capacity to invest in can reduce machinery costs as much as $50 per acre. But the costs can be estimated by making a few assump­tions about machine life, annual use, and fuel and labor prices. The degree of me­chanical wear may cause the value of a particular machine to be somewhat above or below the aver­age value for similar machines when it is traded or sold. The economic life of a machine is the number of years over which costs are to be es­timated. It is the amount you could expect to receive as a trade-in allowance, an estimate of the used market value if you expect to sell the machine outright, or zero if you plan to keep the machine until it is worn out.
Note that for tractors, combines and forage harvesters the number of hours of annual use is also considered when estimating the remaining value. But if you use your own capital, the rate to charge will depend on the opportunity cost for that capital elsewhere in your farm business. Capital recovery is the number of dollars that would have to be set aside each year to just repay the value lost due to depreciation, and pay interest costs. Property taxes on farm machinery have been phased out in Iowa, except for very large in­ventories.
Providing shelter, tools, and maintenance equipment for machinery will result in fewer repairs in the field and less deterioration of mechanical parts and appearance from weather­ing. Repair costs for a particular type of machine vary widely from one geographic region to another because of soil type, rocks, terrain, climate, and other conditions. Good records indicate whether a machine has had above or below average repair costs and when major overhauls may be needed. The total accumulated repair costs are calculated as a percent of the current list price of the machine, since repair and maintenance costs usually change at about the same rate as new list prices.
According to Table 3, after 6,000 hours of use, total accumulated repair costs will be equal to about 25 percent of its new list price. AgDM Information File A3-27, Fuel Required for Field Operations (PM 709) lists average fuel use in gallons per acre for many field operations. However, the fixed costs will usually be lower because the original cost of the machine will be lower.

From Table 1, the expected salvage value at the end of 13 years is 31 percent of the current list price of an equivalent machine (estimated to be $40,000), or $12,400.
The field efficiency is a factor that adjusts for time lost due to turning at the end of the field, overlapping, making adjustments to the machine, and filling or emptying tanks and hoppers. If a machine is purchased, all variable expenses except unpaid labor are deductible when determining income tax liability.
Tax depreciation methods reduce salvage value to zero after a few years for most machines. Fueled by strong, steady increases in its key segments, WFC has been rewarded in the market with substantial increases in its stock price.
Yet Wells Fargo quietly has edged up in the top 10 on the income list for investment banking.
Banks, apart from the Great Recession debacle, have a stable business model that deals with essential financial products such as mortgages, consumer loans, small business loans or other commercial loans. Wells Fargo stock isn’t going to keep getting rewarded with record prices indefinitely, even as its business edges ahead nicely but only modestly.
All these decisions require accurate estimates of the costs of owning and operating farm machinery. This publication contains a worksheet that can be used to calculate costs for a particular machine or operation. The introduction of new technology or a major design change may make an older machine suddenly obsolete, causing a sharp decline in its remaining value. It is often less than the machine’s service life because most farmers trade a machine for a dif­ferent one before it is completely worn out. The annual capital recovery cost is found by first multiplying the appropriate capital recovery factor by the dif­ference between the total depreciation, then adding the product of the interest rate and the salvage value to it. Current rates for farm machinery insurance in Iowa range from $4 to $6 per $1,000 of valuation, or about 0.5 percent of the average value.
Within a local area, repair costs vary from farm to farm because of different management policies and operator skill. Those figures can be multiplied by the fuel cost per gallon to calculate the average fuel cost per acre. Thus, the accumulated costs from 600 to 1,400 hours can be estimated at 45 percent minus 14 percent, or 31 percent of the new list price.
Housing expenses, taxes, insurance, and interest payments made on a loan to finance the machine purchase are also tax deductible. Tax depreciation expense is useful for calculating the tax savings that result from a machinery purchase, but should not be used to estimate true economic costs. Wells Fargo stock has steadily climbed this year from just over $44 a share to carve out a nice 20% gain. Banks are able to charge fees for services and have been profitable even in these low interest rate-spread times. But age and accumulated hours of use are usually the most important factors in determining the remaining value of a machine. A good rule of thumb is to use an economic life of 10 to 12 years for most farm machines and a 15-year life for tractors, unless you know you will trade sooner.
Actual market value will vary from these values depend­ing on the condition of the machine, the current market for new machines, and local preferences or dislikes for certain models. This indicates that repair costs are low early in the life of a machine, but increase rapidly as the machine accumulates more hours of operation.
Wells Fargo stock, however, is still trading at a fairly reasonable valuation, about 13 times current earnings. Key banking measures such as non-performing loans, net charge-offs, and provisions for loan losses were lower.

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