Wear depreciation will vary with the amount of use of a fixed iteni. 21 

 Generally, the more an item is used, the greater the rate of wear depreci- 

 ation. However, the grower who makes frequent expenditures for main- 

 tenance and repair has a lower rate of wear depreciation. 



The cost of depreciation is best thought of as a long-run cost in that 

 the business must make and accumulate sufficient capital over time to 

 replace facilities when they are no longer suitable for use. In the short 

 run — that is, over several years — these costs can be deferred. How- 

 ever, over time these costs must be met if the firm is to stay in operation. 



Interest Rate 



The interest rate on the grower's capital investment should be equal 

 to the rate he can receive from any institution that offers near liquidity 

 and insured deposits plus some amount equal to the risk involved. At 

 the present time, growers can place money in insured savings banks and 

 receive a four percent rate of return. If the grower desired, he could in- 

 vest in securities that offer a 5- or 6-percent return, although the risk 

 would be greater and the investment would offer less liquidity. 



For growers with 100 percent equity, interest charges like depreciation 

 charges are postponable. Many growers prefer to use these charges for 

 current consumption instead of accumulating capital for future replace- 

 ment or new investment in buildings and equipment. 



Debt Repayment and Interest on Borrowed Investment 



For those growers who have less than 100 percent equity in their 

 broiler production facilities, debt and interest repayment is another cost 

 that has to be considered. 



Saunders conducted a survey covering loans to broiler growers in 

 Maine from 1948 to mid-1958 to determine lender experience with broiler 

 house financing by commercial banks in Maine and various Federal Gov- 

 ernment lending institutions.- 2 The loans were used for building or re- 

 modeling broiler houses. During the period, 527 loans were made. The 

 average loan was for $8,386. Fifty-four percent of the loans were for 

 terms of from 5 to 14 years, 12 percent were for terms of less than 5 

 years, and 34 percent were for terms ranging from 15 to more than 25 

 years. These loans were to be repaid in the majority of cases on a month- 

 ly, semi-annual, or annual basis. Annual interest charges ranged from 5 

 to 6 percent. 



Debt repayment is not an expenditure that can be deferred or reduced 

 in most cases. However, some growers probably could refinance their 

 debt to provide for a longer period of time to repay the loan and smaller 

 periodic payments. Interest charges may be increased or decreased de- 

 pending on other factors. 



21 Scoville, O. J., "Fixed and Variable Elements in Calculation of Machine 

 Depreciation," Agricultural Economics Research, U. S. Department of Agriculture, 

 Vol. 1, No. 3, July 1949, PP. 69-77. 



22 Saunders, R., Lender Experience With Broiler House Financing, Maine Agri- 

 cultural Experiment Station Miscellaneous Report 79, pp. 3-6. 



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