Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | The most common form of business arrangement in the U.S.
is: a. | Corporation | c. | Partnership | b. | Sole
Propriortership | d. | Cooperatives | | | | |
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| 2. | What is a lender likely to ask for from a potential
borrower? a. | his assets | c. | his cashflow
statement | b. | his
liabilities | d. | all the
above | | | | |
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| 3. | The major source of credit for Georgia farmers for real estate loans
is: a. | Federal Land
Bank | b. | Framers Home
Administration | c. | Commercial
Banks | d. | Life Insurance Company | | |
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| 4. | Johnny has a dept of $1000.00 that must be paid next month. His
debt would be listed as a... a. | current
asset | c. | capital
asset | b. | current
liability | d. | debt equity
ratio | | | | |
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| 5. | Sidney could have invested his $10,000 at 10% interest at a local bank
but instead invested in a peach orchard. The 10% interest he gave up was
a/an... a. | margin cost | c. | capital
asset | b. | production
cost | d. | opportunity
cost | | | | |
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| 6. | When there is a greater demand for aproduct than there is supply of
that product, the price... a. | increases | c. | stays the same | b. | decreases | d. | may go up or down | | | | |
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| 7. | A farmer had only $5,000 to invest in a cattle feeding
operation. In addition he borrowed $20,000 to increase his... a. | leverage | c. | marginal cost | b. | equity
ratio | d. | diversification | | | | |
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| 8. | Which of the following should not have been listed on Sam's
inventory? a. | feeder pigs on hand | c. | insurance
premiums | b. | feed on
hand | d. | his
truck | | | | |
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| 9. | The advertisement read "Liquidation of the Jones
Farm." This probably meant that Jones was... a. | selling
out | b. | installing modern | c. | expanding his
operation | d. | deceased
irrigation equipment | | |
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| 10. | Who would you go to to place a hedge? a. | Broker | c. | Production
Credit Assoc. | b. | Federal Land
Bank | d. | USDA | | | | |
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| 11. | Johnny was quoted a price of $7.50 for his beans but decided not to
sell. He later sold to another buyer at $7.57. With production cost at $6.58 per pushel
and 3,500 bushels to sell, how much extra provit did he make by checking with the second
buyer? a. | $245.00 | c. | $2.45 | b. | $24.50 | d. | $2,450.00 | | | | |
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| 12. | Modern farming is best described as... a. | labor
intensive | c. | a fixed
cost | b. | capital intensive | d. | all of the
above | | | | |
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| 13. | A farm budget is... a. | a record of what
will happen. | b. | a record of what
is happening. | c. | a recording of
what has happened. | d. | a prediction of
what will happen. | | |
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| 14. | John Boon and his son Bob purchased some land recently. Bob
wanted to cut the timber immediately but John, much the wiser, said no, let's wait a year and get the
advantage of
-
. a. | Investment
credit. | c. | Amortization. | b. | Depreciation credit. | d. | Capital gains | | | | |
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| 15. | If Sarah contracts in March to deliver he corn crop she is about to
plant for $7.00 per bushel next November, what can be said is absolutely true of her transaction if
projected production costs total $3.45 per bushel based on 200 bu. yield? a. | she will make
$3.55 per bushel. | c. | she will make
$3.65 per bushel. | b. | she will make
$3.45 per bushel. | d. | none of the
above. | | | | |
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| 16. | Three people had $1,000 each to invest. Mr. A. speculated in the
futures market, Mr. B. invested in rental property and Mr. C. complained that A & B had made a
lot more money on their investment than he had. Mr. B. said "generally speaking, those of
us willing to a. | invest our money | c. | manage our
money | b. | take the
greatest risk | d. | borrow
money | | | | |
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| 17. | Scott sold a futures contract in January for November soybeans at
$6.35 per bushel. At harvest time he sells his beans at the local market for $8.40 per pushel
and buys back his futures contract. The effective price Scott got for his soybeans is
about... a. | $6.35 | c. | $7.65 | b. | $8.40 | d. | $7.38 | | | | |
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| 18. | Recotds adequate for income tax purposes are considered the/an
amount of records to keep
for business purposes. a. | maximum | c. | adequate | b. | minimum | d. | none of the
above | | | | |
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| 19. | Johns current ratio of assets to liabilities is 2:1. One thing
this means is that.... a. | John could not
cover all his debts if they were called
due. | b. | John is
in-solvent. | c. | John's
liabilities are greater than his assets. | d. | none of the
above. | | |
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| 20. | Which person below needs life insurance the most? a. | $15,000 Farmer
net worth, 21 yrs old, not married, no dependents, no brothers or sisters parents
deceased | c. | $125,000 Farmer
net worth, 55 yrs. old, divorced, has 3 children over 18 yrs., no
dependents | b. | $10,000 Farmer net worth, 32 yrs. old, married, has 4 children
under 18 Yrs., has $15,000 tax credit for this year | d. | $100,000 Farmer net worth, 65 yrs old, has 10 children over 18
yrs, drawing Social Security | | | | |
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| 21. | Your pal borrows $10.00 in 1984 and agrees to repay you in 3 years at
12% interest compounded annually. How much would he owe you in 1987? a. | $11.20 | c. | $13.60 | b. | $14.04 | d. | $12.20 | | | | |
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| 22. | If a farmer had total assets of $654.160 and made a profit of $39,249
his return on investment would be...
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| 23. | A
loan is one in which only
the interest is paid each period until a specified time at which the total principal is
due. a. | Amortized | c. | Secured loan | b. | Ballon | d. | Unsecured
loan | | | | |
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| 24. | Sara wanted to remove some of their risk from her greenhouse business,
so she... a. | borrowed money | b. | forward
contracted | c. | changed her
supplier | d. | increased the
size of pots
her
plants | | |
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| 25. | Which is considered an intermediate asset? a. | cash | c. | sows for
breeding | b. | 200 bushels
wheat | d. | land | | | | |
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| 26. | The President of the United States just announced a grain embargo
against the Soviet Union. Ira has 40,000 bushels of corn in storage, his most likely reaction
to this news is... a. | Yipie!; the
Russians got what they desearved. | b. | Oh no, I just
lost money. | c. | I wonder if it
will affect me? | d. | This won't
affect me, I don't sell to Russia. | | |
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| 27. | The common types of ownership does not include... a. | sole
propriertorship | c. | Corporation | b. | partnership | d. | owner-equity | | | | |
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| 28. | Jimmy borrowed 90% of the money to start a business, the Guaranteed
multiplying Ant Farm, selling breeding stock. First Federal Bank holds the first mortgage,
Shark Loan Company owns the second and his Mother holds the third mortgage. If the business
fails who will be the last to receive any of the assets? a. | Jim | c. | Shark Loan
Company | b. | Mother | d. | First Federal
Bank | | | | |
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| 29. | Which of the following is an asset? a. | $400.00 in
savings | b. | $150.00 balance
due on auto. insurance. | c. | A borowed
tractor | d. | A mortgage on
the farm | | |
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| 30. | At the end of a sale day, Joey's roadside market had received $687.00
from produce sales. This was... a. | gross
profit | c. | net
profit | b. | gross receipts | d. | return to management | | | | |
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| 31. | The cost of production on Thomas's Sod Farm was $905.00 per acre when
he had 50 acres in production. When he increased his acreage to 75 acres his cost per acre
decreased to $900.00. Thomas was experiencing the
phenomenon. a. | sod maximization | c. | ammortization | b. | marginal cost | d. | economy of scale | | | | |
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| 32. | Which of the following is a fixed cost? Cost
of... a. | seed | c. | machinery | b. | fertilizer | d. | gasoline | | | | |
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| 33. | Mr. Flanders is currently growing corn on a 40 acre tract of
land. He plans to use a partial budget to determine if soybeans will be more profitable.
Which of the following items would not be included in the partial budget. a. | the cost of the
land. | c. | production cost
for soybean | b. | production cost for corn | d. | market value of corn | | | | |
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| 34. | Cooperatives differ from non-cooperative corporations in which
area. a. | a cooperative
has no manager. | c. | how voting is
done. | b. | a cooperative
has no board of directors | d. | cooperatives are never incorporated. | | | | |
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| 35. | A farmer can usually separate his costs into variable cost and fixed
costs. Which costs must be paid by the farmer even if nothing is produced? a. | both variable
and fixed cost. | c. | variable
costs. | b. | neither variable
nor fixed cost. | d. | fixed
costs | | | | |
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| 36. | Your ability to pay all debts if you liquidated your business is
called: a. | current ratio | c. | solvency | b. | equity | d. | investment
credit | | | | |
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| 37. | A depreciation schedule should not include: a. | expected life of
item | c. | original
cost | b. | rate of depreciation | d. | present market
value | | | | |
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| 38. | As output is increased, average fixed cost will: a. | increase | c. | remain constant | b. | decrease | d. | be equal to marginal revenue | | | | |
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| 39. | When calculating their taxable income for the year, most farmers use
which accounting method? a. | accrual | c. | depreciation | b. | cash | d. | liability | | | | |
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| 40. | An advantage of the corporate form of business organization
is... a. | easy to
organize | c. | limited
liability | b. | no legal
requirements | d. | does not pay
income tax | | | | |
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| 41. | A farmer with limited capital who is in need of temporary life
insurance protection should purchase: a. | a straight life
policy | c. | a term
policy | b. | an endowment
policy | d. | a limited
payment policy | | | | |
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| 42. | The price of a farm commodity is basically determined by
the: a. | impact of
advertising companies | c. | cost of
production | b. | world food
situation | d. | supply and
demand for the product | | | | |
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| 43. | A farmer purchases a new tractor for $30,000 and depreciates it as 5
year property using the accelerated cost recovery system (ACRS). How much depreciable value
would he have left at the end of the third year?
ACRS - Schedule
5 Year Property
1st yr. ....15%
2nd yr.
....22%
3rd yr. ....21%
3rd-5th yr. .....21% a. | $12,600
| b. | $17,400
| c. | $11,100
| d. | $12,000
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| 44. | Depreciation is best defined as: a. | an alternative
for investment credit. | b. | only used for
breeding animals. | c. | an allowance for
wear, tear and obsolesence.. | d. | a technique to
reduce taxes. | | |
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| 45. | A good use for cash flow planning is: a. | to eliminate
poor animals from the herd. | b. | to obtain a loan
for operating capital. | c. | to indicate
which enterprise is most profitable. | d. | to compute
income tax estimates. | | |
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| 46. | Which of the depreciation methods allow the greatest amount of
depreciation during the first full year of service? a. | straight
line | c. | declining
balance | b. | sum-of-the-year
digits | d. | all allow the
same | | | | |
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| 47. | Livestock, land and other personal property used to secure a loan is
knows as... a. | commodities | c. | collateral | b. | principal | d. | current assets | | | | |
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| 48. | One where small supplies and/or strong demand causes prices to rise is
known as a: a. | bear market | c. | cow
market | b. | bull
market | d. | commodity
market | | | | |
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| 49. | An itemized list of goods on hand with their estimated worth is called
a/an: a. | gross
return | c. | investment | b. | tax
credit | d. | inventory | | | | |
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| 50. | Net operating savings of a cooperative which are distributed to the
Cooperative's customers (patrons) on the basis of the amount of business they do with the cooperative
is known as a/an... a. | investment
credit | c. | marginal
savings | b. | patronage
dividend | d. | variable
credit | | | | |
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Partial Budgets:
Use the following information to answer questions 51-55
concerning Partial Budgets.
In past years
Jimmy has planted 100 acres in soybeans on his best land and this year is contemplating adding
another 50 acres but the land is marginal and is currently rented for pasture at $35.00 per
acre. Answer Jimmy's questions based on data provided.
Current Data:
100 acres soybeans
Projected yield = 35 bushels per acre
Projected price = $7.85 per bushel
Variable Production Cost = $3.35 per
bushel
Fixed cost
average = $2.00 per bushel
Projected
data on additional 50 acres
Yield on new acres = 20 bushels
Expected price = $7.85 per bushel
Variable cost = $3.35 per bushel
Fixed
Cost: Assume no accitional fixed costs would be incurred with an
additional 50 acres
(The following
form may be helpful in your calculations.)
Additional
Costs
Additional Returns
Reduced
Returns
Reduced Costs
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| 51. | If projections are correct, what will be the net additional return or
loss on the added 50 acres? a. | $2750
profit | b. | $7850
provit | c. | $4500
profit | d. | $1750
loss | e. | None of the above | | |
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| 52. | What is the average yield projected for the total (150)
acres? a. | 27.5 bu. per acre | b. | 23 bu. per
acre | c. | 30 bu. per acre | d. | 26.2 bu. per
acre | e. | 29 bu per
acre | | |
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| 53. | What would be Jimmy's net profit from the 150 acres? Note:
the $35.00 that had previously been received for rent is an opportunity cost and is not used in this
calculation. a. | $12,550 | b. | $11,500 | c. | $13,250 | d. | $
8,750 | e. | None of the
above | | |
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| 54. | Jimmy can rent 50 acres of land from his neighbor for $85.00 per acre
that is of same quality as his best land. An additional 50 acres is all that he is capable of
handling at this time. Should he rent his neighbors land instead of using his marginal land and
if so, how much? a. | Yes, rent 50 acres | b. | Yes, rent 30
acres | c. | Yes, rent 20
acres | d. | Yes, rent 10
acres | e. | No | | |
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| 55. | You will be happy to know that Jimmy's predictions did work out as
planned and by manipulating his hedge, he got $8.10 instead of $7.85 for his beans on his original
100 acres. (He did not lift the hedge on any other acreage). How much extra net profit
did he make from the increase in Price? a. | $785.00 | c. | $875.00 | b. | $7,850.00 | d. | $78.00 | | | | |
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| 56. | Given the following information, how much fertilizer should you apply
to your corn crop to maximize profit?
Corn price =
$3.00 per bushel
Fertilizer cost
= $7.00 per 100 lbs.
Fertilizer Applied Estimated Yield
Marginal
Marginal
in
lbs/acre in
bu.
cost return
500
70
600
90
700
107
800
117
900
126
1000
134
1100
142
1200
148
1300
151
1400
153
1500
154
1600
154
1700
153
1800
150
a. | 1000 lbs per
acre | b. | 1300 lbs. per acre | c. | 1400 lbs. per
acre | d. | 1500 lbs. per acre | e. | 1700 lbs. per
acre | | |
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| 57. | Trina needs term insurance for the next 5 years until she is vested in
her retirement plan. Term insurance coverage of $100,000 will cost her $6 per month for 5 years
from Company A. Company B offers her $100.000 coverage for 5 years for $1000 paid at the
beginning of coverage and no other changes, plus, at the end of 5 years her $1000 would be
returned. The local banks are currently paying 12% on 5 year certificates of $500 or more
compounded yearly. Trina's best alternative is to: a. | Purchase from
Company A | b. | Purchase from
Company B | c. | The costs are so
close she should choose on Company
reputation. | d. | Put her money in
the bank at 12% and insure herself. | e. | Purchase one
half from each company. | | |
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Use the following information to answer questions
58-59.
Cash Flow Analysis for Don's Pick-Your-Own
Vegetables
Cash
Inflow Jan-March April-June
July-Sept Oct-Dec
Strawberries
0
5,000
10,000 0
Vegetables
Total Cash Inflow
0
5,000
10,000 0
Cash Outflow
Maintenance $
100
100
100 0
Supplies
500
500
700 0
Plants & Seeds
2,000
400
400 700
Fixed Costs
1,000
1,000 1,000
1,000
Hired
Labor
1,000
1,000
500 0
Total Cash Outflow
4,600 3,000
2,700 1,700
Cash Surplus
or
Dificit
-4,600 2,000
+7,300 -1,700
Payment on
Oper-
tion
Loan
0
2,000
2,600 -
Operating Loan Bal.
4,600
2,600
0 -
($0.00 1/1/84)
Ending Cash
Balance 0
-2,000 4,700
+3,000
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| 58. | Assuming the same prices, costs and operations as in 1985, and
considering ending cash balance, how much operating money must Don borrow in the first quarter of
1985? a. | $4600 | c. | $7600 | b. | $1600 | d. | $2600 | | | | |
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| 59. | Charles can fertilize his greenhouse crops with a hozon, but it
requires a great deal of labor, 5 hours per week yearound. He is considering purchase of more
automated fertilizer equipment which would cut labor to 4 hours per week. Based on the given
information, can he economically justify this equipment purchase and how much will it save above the
cost of the new equipment.
New equpment
price - $875.00
Life expectancy
- 5 years
Labor cost - $4.00 per hour a. | Charles should
not purchase equipment, the savings is $240. | b. | Charles should
not purchase equipment, the savings in $480. | c. | Charles
should purchase equipment, the savings is $875. | d. | Charles
should purchase equipment, the savings is $165. | e. | None of the
above. | | |
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| 60. | What was Don's net profit in 1984 (based only on figures
profided). a. | $3,000 | c. | $15,000 | b. | $12,000 | d. | $27,000 | | | | |
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Projected yield = 60 bushels
Costs per acre
Seed......................................$15.00
Fertilizer/Lime......................$65.00
Hired
Labor...........................$15.00
Fuel/Oil.................................$35.00
Machinery Costs................... $70.00
Interest on Operating Loan....$15.00
Other Fixed Costs..................$15.00
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| 61. | What is the break even price above, considering all costs
listed? a. | $2.42/bu.
| d. |
$3.83/bu. | b. | $2.65/bu.
| e. |
$2.89/bu. | c. | $3.33/bu. | | | | |
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| 62. | Given the following information, at what minimum
price
listed below would rational growers choose to plant
corn? a. | $2.35/bu.
| d. | $3.50/bu. | b. | $2.12/bu. | e. | $3.83/bu. | c. | $2.65/bu. | | | | |
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| 63. | Based on records of past years sales, Sherrie determined that she
could sell various quantities of Photinia Shrubs at different prices. Based on this
information, at what price
should she sell
to maximize profit if her product cost is $4.25 per unit?
Price
Quantity Sold
$4.50
2870
$4.75
2660
$5.00
2400
$5.25
2100
$5.50
1600
$5.75
1300
$6.00
1100 a. | $5.00
| d. |
$5.75 | b. | $5.25
| e. | $6.00 | c. | $5.50 | | | | |
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Use this information for questions 64-66.
Jim inherited 4 chicken houses and consequently makes a good
profit because he has no payments to make on the houses and land. In the past few years his net
profit averaged $16,000 which is not the income he would like. His income goal is $20,000 per
year. He either wants to add other houses or sell out. Based on the given information,
which is his best option?
Data:
Return to
investment on old houses = $4,000 each.
New house price = $50,000.
Amortized @ $500 per month for 20 years (assume no
salvage
value).
Appraised value
of present houses and only the land on
which they sit = $200,000.
Assume all costs but the added cost of the new house
(above)
will remain the
same per unit.
The local
Savings and Loan pays 11% on savings.
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| 64. | What is the present rate of return to investment? a. | 18%
| d. | 8% | b. | 16%
| e. | 5% | c. | 14% | | | | |
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| 65. | What should Jim do? a. | Sell
out | b. | Build one house | c. | Build two
houses | d. | Keep his present
operation as is | e. | Build three
houses | | |
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| 66. | What would be the rate of return the first year on the new house
after subtracting the added cost of the house? a. | -8%
| d. | 5% | b. | -4%
| e. |
4% | c. | 8% | | | | |
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Use the following information to answer questions
67-69.
FARM BUDGET
A. Organization:
Cash Crops
Soybeans.........................200 acres
Sunflowers........................90 acres
Wheat............................200 acres
Livestock
1000 hogs for finishing
B. Financial Summary:
Receipts by Enterprise
Soybeans.........................$67,000
Sunflowers....................... 20,000
Wheat............................ 22,000
Hogs.............................100,000
Expenses by
Enterprise (includes all costs except
Labor and Management)
Soybeans.........................$48,000
Sunflowers....................... 36,000
Wheat............................ 17,000
Hogs............................. 80,000
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| 67. | What is the net return per unit (per hog) for the
hog operation? a. | $200
| d. |
$100 | b. | $20
| e. | $80 | c. | $10 | | | | |
|
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| 68. | What is the net return to labor and management for this
farm? a. | $28,000 | b. | 209,000 | c. | $18,000 | d. | $180.000 | e. | None of the
above. | | |
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| 69. | This farmer really loves raising hogs and would like to do it full
time, eliminating all other enterprises. How many hogs would he have to produce per year, based
on these figures, to maintain his income? a. | 1400 | c. | 2000 | b. | 1800 | d. | 28,000 | | | | |
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| 70. | Farmer Dickerson is planning to set out an acre of blueberries on his
farm. His rows will be 12 ft. wide and his plants spaced 6 ft. apart. He can purchase the
plants for $1.50 each. He also needs to purchase 500 lbs. of fertilizer at $135.00/ton (2,000
lbs.). Assuming no other costs, what will his expenses be for establishing the
blueberries? a. | $435.20 | b. | $621.50 | c. | $724.40 | d. | $941.25 | e. | None of the
above. | | |
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| 71. | A farmer is planning to purchase a new tractor at a cost of
$30,000. His old tractor will trade in for $10,000. He needs to finance the
balance. He has two options:
1. The
tractor dealer will finance the balance for him for 5 years at 8% interest using the add-on method
(interest in advance).
2. The
bank offers to loan him the money at 12% interest with 5 annual equal payments on the
principal. The interest is calculated using the remaining balance methods. a. | The farmer would
save $800 by letting the tractor dealer finance. | b. | The farmer would
save $800 by borrowing from the bank. | c. | There is no
difference in the interest cost of the two methods. | d. | The farmer would
save $4,000/00 by letting the tractor dealer finance it for him. | | |
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Balance Sheet Analysis
Use the
following information to answer questions 72-74
Cash and checking account balance . .
.$ 2,500
Mortgage on land. . . . . . . . . . . . . . . . . .
110,000
Value of
machinery. . . . . . . . . . . . . . . . . 80,000
Value of land . . . . . . . . . . . . . . . . . . . . .
240,000
Value of feeder
livestock . . . . . . . . . . . . 50,000
Loan at bank (due in 90 days) . . . . . . . . .
30,000
Loan on
machinery . . . . . . . . . . . . . . . . . 15,000
Value of grain in storage . . . . . . . . . . . .
. 20,000
Interest due and
payable. . . . . . . . . . . . . . . 4,000
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| 72. | This farmer has total liabilities of... a. | $17,353 | b. | $173,530 | c. | $15,900 | d. | $159,000 | e. | None of the
above | | |
|
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| 73. | This farmer has a net worth of how much? a. | $233,500 | b. | $23,350 | c. | $392,500 | d. | $39,250 | e. | None of the
above | | |
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| 74. | What is the farmer's owner equity ratio? a. | 49% | b. | 59% | c. | 69% | d. | 79% | e. | None of the
above | | |
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| 75. | Bobby Joe's tractor originally cost $22,000 but after 1 year it is
appraised at $24,000. He is entitled to 21% depreciation of the tractor this year and his tax
bracket is 40%. How much in tax savings (approximately) will the tractor account
for? a. | $184.80 | b. | $1,848 | c. | $2,016 | d. | $201.60 | e. | $8,800 | | |
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