Download Sample Final

1
AGEC 106
Sample Final
Name:________________________________
SSN:_________________________________
1) Multiple Choice
1.
Goals should be
a.
b.
c.
d.
2.
The last step in the decision-making process is
a.
b.
c.
d.
3.
farm machinery
balance in checking account
breeding livestock
feeder livestock
The best description of a business which has increased its debt/asset ratio is one which has
a.
b.
c.
d.
7.
salvage value
market value
book value
use value
Of the following, which is the most liquid asset?
a.
b.
c.
d.
6.
covers January 1 through December 31
is only 3 months in length
ends on any date other than December 31
can only be used by governmental agencies
The proper term for the value found by subtracting accumulated depreciation from the asset's original
cost is:
a.
b.
c.
d.
5.
implement the decision
bear responsibility for the decision
evaluate the decision
control the decision
A fiscal accounting period is one which
a.
b.
c.
d.
4.
written
specific
measurable
all of the above
purchased more assets
sold some assets
increased its debt
increased its debt relative to total assets
The degree to which a farm's assets adequately cover or exceed its liabilities is referred to as:
a.
b.
c.
d.
solvency
profitability
liquidity
working capital
2
8.
Net farm income less family living expenses and income taxes equals:
a.
b.
c.
d.
9.
The best return to management of the following would be
a.
b.
c.
d.
10.
gain or loss on the sale of machinery and land
interest expense
inventory change
depreciation
If the price of the input decreases, a profit maximizing farmer should
a.
b.
c.
d.
12.
greater than the opportunity cost of management
equal to zero
greater than zero
negative
Any difference between net farm income and net farm income from operations is due to
a.
b.
c.
d.
11.
owner's equity
retained farm earnings
total liabilities
total assets
use more input and produce more output
use more input and produce less output
use less input and produce more output
use less input and produce less output
The Equal Marginal Principal should be used whenever
a.
b.
c.
d.
input prices are high
output prices are low
there is a limited input and several alternative uses for it
a farmer wishes to maximize production from several different enterprises
13.
A diminishing marginal physical product occurs because of
a.
decreasing output prices
b.
increasing input prices
c.
decreasing input prices
d.
limits on physical or biological response to increased input levels
14.
Assume input A and input B can be used in combination to produce a fixed amount of output. If the
price of input A decreases relative to that of input B, the new least-cost combination will
a.
b.
c.
d.
15.
include less of A and more of B
include less of B and more of A
include more of both A and B
include less of both A and B
Which of the following costs are for one unit of output?
a.
b.
c.
d.
average fixed costs
average variable costs
average total costs
all of the above
3
16.
The values in a crop enterprise budget are normally for
a.
b.
c.
d.
17.
Which of the following would be a fixed cost on a typical crop enterprise budget?
a.
b.
c.
d.
18.
additional costs and additional revenue
additional costs and reduced revenue
reduced costs and additional revenue
reduced costs and reduced revenue
A partial budget would be the most useful type of budget for estimating
a.
b.
c.
d.
21.
total revenue and total expenses for the farm
only total expenses for the farm
only total revenue for the farm
only those revenues and expenses which will change
Which of the following decrease profit on a partial budget?
a.
b.
c.
d.
20.
land charge
machinery repairs
labor expense
harvesting expense
The values shown on a partial budget are
a.
b.
c.
d.
19.
one unit of output
one acre
one bushel
100 pounds (cwt.)
the amount of borrowing needed for the next year
the breakeven price needed to cover all costs of corn production
labor needed on the farm during the next year
the change in profit from installing an irrigation system on one field
An example of "debt restructuring" that would improve a farmer's cash flow in the short run is:
a.
b.
c.
d.
lengthening the repayment period of a large loan
increasing the interest rate on a line of operating credit
consolidating several small loans into one larger one
none of the above
4
24.
An amortized loan repayment plan with a "balloon" payment:
a.
b.
c.
d.
25.
Crop share leases are based on the principle that gross income should be shared in the same proportion
as:
a.
b.
c.
d.
26.
the value of a piece of farmland, based on the prices for which other farms have sold for recently
if lime or other fertilizer needs to be applied
if there are environmental hazards on a farm that need to be cleaned up or corrected
if the property taxes on a farm have been paid
Landowners who wish to make all the decisions about production and marketing, but not contribute their
own labor, would probably prefer a:
a.
b.
c.
d.
30.
labor and machinery are used more efficiently
net worth could increase if land values go up
the number of acres farmed is more flexible
less capital is tied up in long-term investments
The propose of an environmental audit is to determine:
a.
b.
c.
d.
29.
price
yield
both
neither
One advantage that owning farmland has over leasing is:
a.
b.
c.
d.
28.
seed costs
total variable costs
total fixed costs
total resources contributed
Under a flexible cash lease, the owner and tenant share what type of risk?
a.
b.
c.
d.
27.
has all the principal due in one payment
has each total payment larger than the previous one
adjusts the interest rate after each payment
has more principal due in the final payment than in the others
custom farming agreement
crop share lease
fixed bushel lease
cash rent lease
The main advantage of purchasing used machinery instead of new machinery is:
a.
b.
c.
d.
lower initial investment
increased reliability
a longer expected useful life
lower repair costs
5
2) True/False
1.
Short-run planning is more important than long-run planning.
True
2.
No management decision should be made until all possible information has been acquired.
True
3.
False
Doubling both input prices does not change the price ratio.
True
13.
False
Marginal cost is equal to the change in total cost divided by the change in input.
True
12.
False
As a general rule, if the price of the output increases, you should use more input to maximize profits.
True
11.
False
A farm business would be considered "profitable" any year net farm income is positive.
True
10.
False
Retained farm earnings cannot be negative.
True
9.
False
Current liabilities are debts which must be paid in full within one year from the date of the balance sheet.
True
8.
False
Borrowing $20,000 to purchase additional dairy cows will decrease owner's equity.
True
7.
False
The three major components of a balance sheet are assets, liabilities and owner's equity.
True
6.
False
All depreciation methods will result in the same total depreciation over the full life of the asset.
True
5.
False
Book value is equal to cost minus salvage value.
True
4.
False
False
Over time, changes in technology can change the substitution ratio between two inputs.
True
False
6
14.
It is possible for the opportunity cost of an input to be very low or zero if there is no alternative use for it.
True
15.
Average fixed cost is constant as output increases.
True
16.
False
Owning farmland rather than renting it generally gives the operator more management freedom.
True
24.
False
Borrowing operating funds under a "line of credit" agreement requires more communication between
borrower and lender than borrowing the same amount in several separate loans.
True
23.
False
A borrower would pay more total interest on a 10-year loan amortized under an equal principal payment
plan than on the same loan amortized under an equal total payment plan.
True
22.
False
If the change in profit from partial budgeting analysis is positive, it is always the best farm management
decision to implement the change.
True
21.
False
A partial budget analyzes two management alternatives at one time.
True
20.
False
Enterprise budgets are useful when selecting enterprises to include in a whole farm plan.
True
19.
False
For a given total cost, the higher the yield, the higher the breakeven price.
True
18.
False
Production should continue in the long run as long as revenue will cover all costs.
True
17.
False
False
Short-term lease agreements encourage operators to implement more soil and water conservation
practices than long-term agreements do.
True
False
7
25.
A cash rent lease requires the tenant to provide more operating capital than a crop share lease.
True
26.
If timeliness costs are included, total machinery cost per acre may increase as the number of acres
increases.
True
27.
False
Short-term rental of farm machinery is likely to have a lower cost than owning machines that have a low
level of annual use.
True
28.
False
False
Joint ownership of machinery can help reduce ownership costs per acre for both owners, compared to
each owning their own machine.
True
False
3) Loan Amortization
You are thinking about buying a $19,000 pickup truck for the farm. You have two loan options:
Loan #1: Borrow $17,000 for 5 years at 10% (compounded monthly)
Loan #2: Borrow $15,000 for 4 years at 9% (compounded monthly)
a) What is your monthly payment for each loan?
b) What are your total principal and total interest payments for each loan?
8
4) Balance sheet
Develop a 19xx balance sheet given the following information:
Noncurrent assets
Noncurrent liabilities
Current assets
Current liabilities
$288,114
$242,763
$ 82,012
$ 71,466
5) Enterprise budgeting
From an enterprise budget you obtain the following information (note: hundredweight is abbreviated
cwt.):
Price
Yield
$66.00/cwt.
6.5 cwt.
Total variable cost
Total fixed cost
$315.00
$47.00
Calculate the following (make sure you indicate the proper units):
a) breakeven price
b) breakeven yield
c) average fixed cost
d) average variable cost
9
6) Income statement
Develop a 19xx income statement given the following information:
Crop sales
Last year’s crop sold this year
This year’s crop sold this year
This year’s crop to be sold next year
Veterinary expense
Depreciation
Market livestock sales
Feed expense
Gain on sale of capital assets
Sale of culled breeding stock
Crop production expenses
$25,000
$97,000
$15,000
$11,000
$27,000
$88,000
$58,000
$13,000
$9,000
$104,000
Is this farm profitable?
7) Machinery management
You have the following information on the cost of owning and operating a 9' disk mower.
Annual ownership (fixed) costs
$2840/year
Repair costs
Fuel and oil costs
Tractor costs
Labor costs
$4.70/hour
$4.20/hour
$8.40/hour
$7.50/hour
The mower is currently being used on 450 acres. It is operated at 4.5 miles per hour and has a field
efficiency of 80%.
a)
What is the total cost per acre to own and operate the mower?
10
Question #7 (continued)
b)
If the cost of custom hiring a mower is $9.00/acre, what is the breakeven acreage needed to
reduce our costs to the custom rate?
8) Line-of-credit
You have a line-of-credit with your local bank for $30,000. The annual interest rate is 12%. This past
year you had the following activity in your line-of-credit:
Feb. 1
April 1
June 1
July 1
Sept. 1
Oct. 1
Nov. 1
Dec. 1
borrowed $1,000
borrowed $9,000
borrowed $14,000
paid back $5,000
borrowed $2,000
paid back $4,000
paid back $12,000
paid back $3,000
You want to pay off the outstanding balance on your line-of-credit on January 1. How much will you
owe (principal and interest)?
11
9) Land rental
a)
You want to rent out 140 acres of land which you own. It is worth $1,150 per acre and your
opportunity cost of capital is 7%. The property taxes are $2,100 per year. What is the minimum
rent you would accept?
b)
You are thinking about renting a 140 tract of land. This particular land has averaged 115
bushels of corn for many years. If the expected price of corn is $3.10 and the cost of production
is $245, what is the most you would be willing to pay to rent the land?
c)
Suppose the landowner in a) and the tenant in b) decide on a share cropping arrangement. The
landowner will contribute the land and $50 towards production expenses. How much of the
crop can the landowner expect? How much will the tenant make per acre?
d)
Suppose the landowner in a) and the tenant in b) decide on a variable cash rent. The base rent is
set at $100/acre, with a base yield of 115 bu./acre and a base price of $3.10/bushel. How
much rent will the landlord receive if the actual yield is 75 bu./acre and the actual price is
$3.20/bushel?
Also: There will be questions on labor management and risk management