Economics of Farming with Horses
Debt Financing** (part 7 of 7)

I have resisted the temptation to conduct this analysis in the conventional terms of debt financing and the time value of money for a number of reasons:

1. No inflation or deflation.
2. Debt financing is used only on expenses over $1,000, at a rate of 6% per year for a period of 10 years.
3. Any net revenue is invested once each year, earning interest at a rate of 3% until age 65.
4. Investment tax credits will not apply.

Considering the time value of money as part of the analysis would alter the results. Assuming:

• No inflation or deflation.
• Debt financing is used only on expenses over $1,000, at a rate of 6% per year for a period of 10 years.
• Any net revenue is invested once each year, earning interest at a rate of 3% until age 65.
• Investment tax credits willnot apply.

Not until long after we made our choice to farm with horses did we begin to understand the economic advantages. What are the costs and benefits associated with using draft horses on the small sustainable farm? Are they an economical option, and why? On what size farm might they make sense?

To begin answering these questions, we must establish costs for each option—tractor power and horse power—then look at the trade-off using some fundamental cost evaluation tools. My analysis is based on just one farm, and since the devil is often hidden in the details, my assumptions are structured so you may substitute your own values and make your own comparisons.