Agriculture Reference
In-Depth Information
2 .
Replacement projects
: Should the custom application fertilizer applicator be replaced
now, or should it be kept for another year?
3 .
Alternative investment projects
: Which would be more profi table, stainless steel or mild
steel storage tanks?
The procedure for evaluating the effects of an agribusiness manager's investment choices on
the profi tability, risk, and liquidity of a business is called
capital budgeting
or investment
analysis. Capital budgeting is an orderly sequence of steps that produces information rele-
vant to an investment choice. These steps are:
1.
Identifi cation of investment alternatives
2.
Selection of an appropriate capital budgeting evaluation method
3.
Collection of relevant data
4.
Analysis of the data
5.
Interpretation of the results
These fi ve steps are developed and explained in the following sections.
Plate 13.1
Irrigation equipment
Capital budgeting focuses on the longer-term decisions of an agribusiness. Photo courtesy of
USDA Natural Resources Conservation Service.
