Custom hiring work and renting machines for short periods of time were not analyzed because these options are viewed as short term solutions in the business life of the farm firm. Age, efficiency and reliability of present machine. Repair and timeliness of present machine. Size considerations caused by expansion or contraction. Incorporating these factors into the decision process involves analysis of the farm firm's present and future economic position.
Numerous techniques are available with varying degrees of accuracy.
One simple method of analyzing an asset replacement is the calculation of the payback period. The payback period is that period of time which is required to repay the cost of the machine through future, or increased, earnings directly related to that specific machine. Machinery asset purchases that have lower payback periods are more desirable than those with longer periods. This method is a liquidity measure and not a profitability measure, and does not take into consideration the time value of money. Calculation of the payback period is arbitrary in considering the economic life of an asset or the income earned by the asset following the payback period.