There are two types of investments
a) Investment on operating inputs (seed, fertilizers,etc.)
b ) Investment on capital assets (land, farm building, machinery).
– Analysis of these investment involves not only comparison of costs and returns associated with it, but also the timing of occurrence of costs and returns.
– The costs and returns from investment in operating resources occur with a production period of year or less.
– The marginal principles are used to determine the optimum level of operating resources and no need to bring in time elements here.
– But in case of capital assets, where cost and returns are in different time periods and also capital expenditure involves costs and returns over time (eg orchards).
– To examine the profitability of these investments, requires recognition of time value of money.