Answer to Question #202098 in Management for zile

Question

Critically analyse the main factors that a farming company may consider when purchasing its capital equipment. Use relevant examples to justify your analysis.

Answer 1

Factors to Consider When Buying Capital Equipment

New or Old

New businesses may consider buying used farm machinery as compared to new machines. Farm machinery such as tractor are capital investments and come with huge initial capital outlay and therefore buying old machines can be a viable option. However, the farming company should investigate if the seller of used farm machinery offers warranty and the reputation that he has in selling of farm machinery.

Output

The output of the farm machinery such as a combine harvester should be considered before purchasing it. A perfect farm machinery is one that maximizes production and consumed the least amount of utilities such as electricity.

Cost

The farming company should compare the prices of farm machinery such as fertilizer spreaders from the various suppliers in the market. The supplier who offers the most fair price should be selected for purchasing (Bierman et al, 2012). However, quality of the machine should never be compromised due to the price.

Warranty

The farm machinery will need to be repaired when they broke down and therefore the suppliers of farm machinery such as seeders and planters who offer the most lengthy warranty of cover such as two year period should be selected when purchasing the farm machinery as this means that the farm will have the machine serviced at no cost during the duration of the warranty.

Manpower

The farm machinery will need manpower to operate them as well as to service them when they require servicing. The farming company should consider this aspect before buying such farm machinery for example sprayers.

References

Bierman, J.R. and Smidt, S., 2012. The capital budgeting decision: economic analysis of investment projects. Routledge.