Agricultural Economics Department


Date of this Version

January 2003

Document Type



Published in Cornhusker Economics, 01/08/2003. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska–Lincoln.


Investments in depreciable assets typically involve major capital outlays requiring carefully budgeted decisions. This process involves two parts -- the basic economic decision, as well as the cash flow and financial outcomes which occur over the life of the asset. The basic decision requires an annual cost to be estimated which can be compared to an expected annual return. In some cases (for example, the replacement of one item of a machinery complement), no identifiable return can be matched against the cost. Even in this case it is important to estimate the ownership cost of the asset in comparing it to leasing or lease-purchase alternatives. The basic decision as well as the cash flow and financial outcomes are presented here for an example situation. The analysis is done without the consideration of income tax consequences.