amount of insurance will depend primarily on the age of these items and 

 their earning power, and the amount of the mortgage, if any. 



If the firm is earning a high level of net revenue and the outlook for 

 the future is favorable for continued high returns, the contract grower 

 will want to carry sufficient insurance to protect the earning power from 

 loss. However, declining earning power and unfavorable future expecta- 

 tions will tend to make the property of less value to him or anyone else 

 and induce the grower to reduce insurance premium expenditures. 



Maintenance and Repair Costs 



Maintenance and repair costs fluctuate from year to year and are de- 

 pendent on factors such as level of income, age and condition of physi- 

 cal assets, quality of materials used in the building and equipment, de- 

 cision-making power of the integrator, and age of the grower. 



A diminishing level of income will probably influence growers to re- 

 duce their repair costs and use the funds for other expenditures. How- 

 ever, when the level of income increases, growers will probably increase 

 expenditures for maintenance and repair, especially on repairs that were 

 postponed during periods of low income. 



New production facilities will not require large expenditures for main- 

 tenance and repair since they have not had time to deteriorate or be sub- 

 ject to wear. Older facilities that have been subject to these factors will 

 require larger expenditures. 



The quality of materials used in construction of the building and 

 equipment will influence expenditures over time for maintenance and re- 

 pair. The grower who uses materials subject to rapid deterioration and 

 wear will have to expend more for maintenance than the grower that 

 uses materials subject to a slower rate of deterioration and wear. 



The integrator generally establishes certain minimum requirements 

 based on the condition of the house and equipment. The grower who 

 fails to maintain these factors in a condition equal to or above these 

 standards will be forced to make expenditures for maintenance and re- 

 pair or lose his contract. 



The grower who is approaching retirement age will tend to save as 

 much of his income as possible for his retirement. Thus, he will reduce 

 expenditures on maintenance and repair, especially if he has no inten- 

 tion of leasing or selling the broiler production facilities. 



Depreciation 



By definition, depreciation is the cost of time, obsolesence, and wear 

 on the investment items purchased by the grower's capital which cannot 

 be counteracted by repair and maintenance. 



Time depreciation is the cost of deterioration from rust, corrosion, 

 and rot. Generally, this rate is small and depends on how long the build- 

 ings and equipment will last. 



Obsolesence occurs when the present fixed item is made valueless by 

 new technology. Since the development and adoption of technology does 

 not occur at a constant rate, the rate of obsolesence depreciation is diffi- 

 cult to determine. 



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