Farm Business Management 1994 -- Georgia Agriculture Education Curriculum

Name:

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

As a general rule, you should purchase life insurance if:

a.	it costs less than $20 per month per $1000 of coverage.
b.	dependents rely on your income to live.
c.	your capital ratio is even.
d.	your spouse does not work.

When a loan is secured, it means that:

a.	the borrower has put up property worth as much or more than the principle of the loan.
b.	the lender has approved the loan.
c.	someone has subsidized the interest rate.
d.	the borrower's qualifications are impeccable.

A well known market where futures contracts are traded is the:

a.	Chicago Board of Trade.	c.	International Business Market.
b.	Wall Street Futures Center.	d.	Dow On-Line Trade Center.

John's main job is programming computers. After work and on days off he raises soybeans. John has just sold a contract for his soybeans. He is:

a.	hedging.	c.	bearish.
b.	speculating.	d.	bullish.

A major goal of producers who grow only one crop is to:

a.	spread risk among several enterprises.
b.	reduce their work -load.
c.	free-up their time for off-farm work.
d.	incorporate the economies of scale principle

Items which are least marketable and least readily converted into cash without loss are:

a.	current assets.	c.	animals kept for breeding.
b.	intermediate or working assets.	d.	fixed or long term assets

Which item is most likely to produce capital gains when it is sold?

a.	fertilizer on-hand	c.	milk
b.	timber	d.	herbicide on-

If the revenue from an enterprise is more than the total variable and fixed costs, a producer will:

a.	make a profit.
b.	minimize his losses by producing in the short run.
c.	show a small loss.
d.	minimize his losses by stopping production.

A producer who says, "I'll grow cotton in the short run", probably means he:

a.	will plant cotton in the short rows of his field.
b.	will grow short-season cotton.
c.	will grow the current crop, but then find an alternative crop to produce.
d.	is making a darn good profit.

10.

Riparian rights refers to the rights of:

a.	a land owner with property bordering a stream.
b.	a partner in a limited partnership.
c.	landowners to have their land repaired after government projects, such as road construction.
d.	an individual to have property repaired if it is damaged by another person.

11.

Carol calculated her payment over a 3 year period on a $14,000 piece of equipment as $388.89 per month, including principle and interest. What can be said about Carol's calculations?

a.	Her calculation is wrong, the payment is too low.
b.	Her calculation is wrong, the payment is too high.
c.	Her calculation is correct.
d.	There is not enough information to determine whether the payment is right or wrong.

12.

The figures in a budget are a prediction of income and expenses. These figures are best based on:

a.	production records from previous years.	c.	knowledge of the producer.
b.	experience of the producer.	d.	all the above.

13.

Which of the following is NOT true?

a.	A stray cow becomes the property of the finder after 24 hours.
b.	A person who finds a stray cow can charge the owner for reasonable costs such as feed.
c.	A person who finds a stray cow, and confines it, must make an attempt to find the owner.
d.	A person who finds a stray cow may confine and care for the animal.

14.

Which of the following Net Capital Ratios would indicate the best financial position? (Total Assets / Total Liabilities)

a.	2.50	c.	1.75
b.	2.80	d.	0.14

15.

A producer bought a new combine which was larger and much more expensive than his old one, so he said, "I need to rent more acreage so that my:

a.	total variable cost will decline."	c.	average fixed cost per acre will decline."
b.	variable cost per acre will decline."	d.	total fixed cost will decline."

16.

The Net Worth Statement is the best measure of:

a.	total capital investment.	c.	net cost income.
b.	income taxes that must be paid.	d.	financial progress over a period of years

17.

Bob told the banker that his partner, Justin, had quit their partnership so he was going to make one-half of the truck payment as he usually did, and let the banker collect the other half from Justin. The banker would most likely say,:

a.	"As with any partnership you are individually and collectively responsible for the full amount."
b.	"We cannot hold you responsible for your partner's share but you will have to pay all the insurance."
c.	"If you can give us a current address and telephone number for Justin we will collect."
d.	"We must immediately repossess the truck since the partnership is dissolved."

18.

A 62 year old woman wants to pass along her farm and other assets to her children with a minimum amount of taxes. She should:

a.	see someone specializing in estate planning.
b.	write a will specifying reduced tax.
c.	convert it all to mutual funds.
d.	nothing, there is nothing she can do to reduce taxes.

19.

On a dark night a tornado blew down some trees onto John's fence. While John was still asleep, and before daylight, one of John's steers wandered out onto the road and got hit by Hosea's car. The steer was killed and the car was badly damaged. Which statement is correct?

a.	Someone else was driving Hosea's car, but he go out and ran away after the accident.
b.	Hosea is responsible for the steer and the damages to his car.
c.	John is responsible for Hosea's car and the steer.
d.	John is not liable for Hosea's car damage and Hosea is probably not liable for the steer

20.

Sally made $12,479 profit on her operation last year. Her capital investment was $39,550. What was her rate of return to capital invested?

a.	89.87%	c.	31.55%
b.	72.2%	d.	11.20%

21.

Individual agricultural producers are described as "price takers" because:

a.	as individuals, they take their own products to the market.
b.	they do not exercise their power to get a better price.
c.	they will take the check as soon as it is offered without waiting for a better price.
d.	as individuals, they have very little power to influence prices.

22.

Beavis and Butthead thought it would be cool to play on the obsolete equipment Mr. Brown had parked on his property beside the road. Beavis got hurt and his parents decided to sue Mr. Brown. Mr. Brown's attorney said he might be found liable if the jury or judge determined that the old equipment:

a.	had been there less than 5 years.	c.	was an "attractive nuisance."
b.	did not have safety devices still attached.	d.	was not child proof.

23.

An advantage of a family farm business structured as a corporation is:

a.	that limited capital is required to form a profitable business.
b.	the simplification and ease of management.
c.	that it is exempt from Federal income tax.
d.	that personal liability may be avoided.

24.

Hedging does all the following except:

a.	guarantees a profit to the producer.
b.	guarantees a price to the producer.
c.	prevents windfall profits.
d.	insures against unfavorable price movement

25.

Receipts are:

a.	income received from sales of commodities produced, services rendered , etc.
b.	ordinary and necessary costs of operating a business.
c.	items used in two or more production cycles.
d.	detailed instructions on how to cook.

26.

All your debt obligations to others are ____________.

a.	dividends	c.	liabilities
b.	checks	d.	financial statements

27.

Employer's responsibilities to employees includes:

a.	providing a safe place to work.
b.	warning and instructing employees of dangers which would reasonably be expected to be encountered.
c.	make reasonable rules for employees while they are on the job.
d.	all the above.

28.

Which of the following is true concerning trespassers on your land?

a.	You may use reasonable force to remove trespassers.
b.	You must insure the safety of trespassers.
c.	You are required to warn trespassers of hidden dangers.
d.	You may never use deadly force to remove a trespasser.

29.

A reduction in the supply of an agricultural commodity, with no change in demand, normally results in:

a.	a price decrease.	c.	unchanged prices.
b.	a price increase.	d.	downward movement of the GNP.

30.

The time a check is in transit between the bank it was deposited at and the bank it was drawn on is called:

a.	demand time.	c.	between time.
b.	float time.	d.	BB time.

31.

If a person fails to comply with the terms of a contract, it is known as:

a.	a fulfilled contract.	c.	a breach of contract.
b.	a statute of fraud.	d.	a wavier of contract

32.

Which of the following would probably see the least change in quantity demanded it the price was increased?

a.	Pepsi Cola	c.	gasoline
b.	chicken patties	d.	sausage

33.

A legal entity, which is separate from stockholders, and protects the stockholders from personal liability, best describes a(n):

a.	proprietorship.	c.	partnership.
b.	corporation.	d.	S partnership.

34.

In the long run, as the price of corn increases the supply:

a.	decreases.	c.	increases.
b.	equalizes.	d.	remains unchanged.

35.

Advertising is designed to:

a.	increase supply.	c.	decrease price.
b.	increase demand.	d.	increase prices by attracting more costumers

36.

Most farm businesses in the modern world are:

a.	corporations.	c.	S corporations.
b.	sole proprietorships.	d.	partnerships.

37.

Estate taxes are imposed:

a.	by the Federal government after death.
b.	by the Federal government on any transfer of property.
c.	if equipment is auctioned.
d.	on the sale of any capital farm items.

38.

An electrician you hire for a fee to repair an irrigation pump would best be described as a(n):

a.	employee.	c.	part-time employee.
b.	independent contractor.	d.	limited partner.

39.

The average size of full-time farms in the U.S. is ______ in 1945.

a.	larger than	c.	much smaller than
b.	smaller than	d.	about the same as

40.

Assume you are a speculator in corn futures, and that you somehow got information, before it was widespread knowledge, that the acreage of corn planted in the mid-west was down drastically from earlier forecasts. What would be the most profitable use of this information?

a.	Immediately buy futures contracts of corn at the current price.
b.	Immediately sell as many futures contracts as possible.
c.	Immediately hedge your crop by selling contracts.
d.	This information would be of little value to a speculator -- only to a producer

41.

Long-term credit should be used for items such as:

a.	brood cattle purchases.
b.	irrigation ponds.
c.	buildings.
d.	all of these are appropriate for purchase with long-term credit.

42.

Which of the following is NOT depreciated for tax purposes?

a.	land	c.	buildings
b.	tractors	d.	trucks

43.

An example of a variable cost of producing strawberries is:

a.	interest.	c.	mulch.
b.	taxes.	d.	depreciation.

44.

A study to determine whether or not a business will be profitable is called:

a.	a feasibility study.	c.	an opportunity analysis.
b.	a partial budget.	d.	a comparison equation.

45.

Which of the following is true?

a.	One should always produce well beyond the point of diminishing returns.
b.	Investment tax credit is given as an incentive to invest in capital outlay items such as equipment.
c.	For maximum profit, one should strive for the greatest yield or output.
d.	The average American consumer spends a higher percent of his income on food than he did twenty years ago.

46.

A business is said to be solvent if total:

a.	assets exceed total liabilities.	c.	liabilities exceed total assets.
b.	capital assets exceed capital liabilities.	d.	current assets exceed current liabilities

47.

A budget for producing soybeans would be termed:

a.	a supply budget.	c.	an enterprise budget.
b.	a partial budget.	d.	a supply and demand curve evaluation.

48.

A budget predicts:

a.	capital gains.	c.	income and expense.
b.	net worth.	d.	inventory values.

49.

Which of the following could be used as collateral?

a.	livestock	c.	automobiles
b.	land	d.	all the above

50.

Income taxes are paid to the:

a.	Federal government.	c.	state and Federal governments.
b.	state government.	d.	EPA.

ITEMS 51 - 54 Partial Budget: Selling 1 gallon azaleas vs. growing them to 2 gallon size.

A producer has 5000 1 gallon azaleas ready to sell. He can get $1.18 each if he sells them now. A landscaper offered to contract to buy them in 1 year for $2.30 each if he will grow them to 2 gallon landscape size. He raises azaleas in his spare time and cannot care for more than 5000. He would like to sell the azaleas as 1 gallons because he needs the cash flow, but he is willing to grow them to 2 gallon size if it means more profit. He also knows that growing them to 2 gallon size means that some may die before they are sold. He has $3,100 invested in the 1 gallon azaleas.

If he chooses the 2 gallon alternative, he estimates the added costs and reduced returns will be:

5000 2 gallon pots at 24 cents each.

5000 1 gallon pots salvaged at 18 cents each

1 year of additional labor will cost .20 per pot

additional fertilizer will cost .05 per pot

additional soil will cost .07 per pot

cold frame space for 1 year will cost .09 per pot

irrigation for one year will cost .05 per pot

interest on the value of 5000 1 gallon azaleas will be 8%

51.

What is the total value of the 1 gallon azaleas?

a.	$3100	c.	$3950
b.	$5900	d.	$3887

52.

What is the additional cost of growing the azaleas to 2 gallon size?

a.	$3072	c.	$2600
b.	$1234	d.	$2897

53.

What is the estimated TOTAL PROFIT to be made if the grower decides to grow the azaleas to the 2 gallon size?

a.	$4359	c.	$8428
b.	$7727	d.	$5328

54.

Since he can only care for 5000 pots, what should this grower do?

a.	sell the one gallon azaleas and start another crop of the 1 gallon size
b.	grow the 1 gallon azaleas on to 2 gallon size
c.	sell one half of the 1 gallon size and grow the other half on to 2 gallon size
d.	sell the 1 gallon azaleas and start another crop to grow on to the 2 gallon size

Income Statement Analysis. Use the following information on a landscape maintenance business to answer questions 55 - 58.

Income from contracted lawns $34,000

Income from pruning services 9,500

Income from contracted spraying 28,900

Building rent 6,800

Equipment rent 1,100

Increase in inventory of supplies 7,000

Hired labor expense 32,000

Cash operating expenses 900

Machinery depreciation 900

55.

What is the gross cash income for this business?

a.	$51,459	c.	$72,400
b.	$31,600	d.	$40,800

56.

What is the net income for this business?

a.	$37,700	c.	$39,500
b.	$31,600	d.	$23,700

57.

What is the net cash income for this business?

a.	$72,400	c.	$40,800
b.	$31,600	d.	$37,700

58.

If the owner worked in this business for 45 hours per week for 50 weeks, what is the return per hour for his work?

a.	$13.32	c.	$19.11
b.	$16.76	d.	$13.45

Data for questions 59 - 62.

Cash flow projection for Back-Acher Pick-Your-Own Strawberry Farm, 1995-1996

CASH EXPENSES	June	July	Aug - Sept	Oct.	Nov.	Dec.	Jan.	Feb	Mar	April	May	June
Fertilizer	300	100		100					100			300
Hired Labor	100			100			100			200	150	100
Plants	300											50
Advertising								50	100		50
Land Rent	40	40	80	40	40	40	40	40	40	40	40	40
Equipment Rent	300	100							50	100	100	100
Chemicals, etc.	50							50	50			50
TOTAL CASH OUTFLOW	1,090.00	240.00	80.00	240.00	40.00	40.00	140.00	140.00	340.00	340.00	340.00	640.00
SALES	0	0	0	0	0	0	0	0	0	4400	2400	1000
CASH SURPLUS OR DEFICIT	-1090	-240	-80	-240	-40	-40	-140	-140	-340	4060
OPERATING LOAN BALANCE ($0.00 6/1/95)	-1090	-1330	-1410	-1650	-1690	-1730	-1870	-2010
ENDING CASH BALANCE	-1090

59.

What is the total sales projected for this business from June 1995 through June 1996?

a.	$7800	c.	$3370
b.	$4400	d.	$1490

60.

The owner of this business will need ______ dollars as a line of credit from June 1995 to June 1996.

a.	$2350	c.	$4060
b.	$2010	d.	$2750

61.

According to this projection, how much cash will be on hand at the end of June 1996?

a.	$2350	c.	$3370
b.	$3370	d.	$4130

62.

The owner of the business prepared this cash flow analysis for his own management purposes, but the _______ would probably have required that it be done anyway.

a.	IRS	c.	EPA
b.	lender	d.	State Department of Agriculture

63.

If an item is regularly priced $28, but is marked 30% off, what is the total price after 6% sales tax is added?

a.	$19.60	c.	$25.76
b.	$20.78	d.	$26.14

The data in the following table applies to questions 64 - 66.

Equal Monthly Payments to Amortize a Loan of $1000
Interest Rate	10 Years	15 Years	20 Years	30 Years
7 3/4	9.61	9.41	8.21	7.16
8	9.76	9.56	8.66	7.34
8 1/4	9.9	9.7	8.52	7.51

64.

How much will the monthly payment be on a piece of property if $87,000 is financed at 8% and amortized over 30 years?

a.	$843.76	c.	$638.58
b.	$723.14	d.	$435.48

65.

If you amortize this loan over 30 years, which of the following is INCORRECT?

a.	more interest will be paid in year 1 than in year 30
b.	the total payment will remain constant for 30 years
c.	more principle will be paid in year 30 than in year 1
d.	interest is always 50% of the payment and principle is always 50% of the payment

66.

The person creating the table made a mistake in one of the cells for 8% -- all other cells in the table are correct. Which one is INCORRECT?

a.	8% for 10 years	c.	8% for 20 years
b.	8% for 15 years	d.	8% for 30 years

Balance Sheet Analysis, Problems 67 - 70.

Cash and checking account balance $21,000

Mortgage on land 250,000

Value of machinery 134,000

Value of land 350,000

Value of feeder livestock 20,000

Loan at bank (due in 90 days) 75,000

Value of grain in storage 20,000

Interest due and payable 10,000

67.

This producer has assets with a total value of ___________.

a.	$505,000	c.	$525,000
b.	$524,000	d.	$545,000

68.

This producer has a net worth of ____________.

a.	$210,000	c.	$274,000
b.	$190,500	d.	$113,000

69.

What is the producer's Equity Ratio? (Also known as Debt-to-Net Worth) (Total Liabilities divided by Net Worth)

a.	1.52	c.	22.85
b.	1.59	d.	21.48

70.

Suppose you are an agricultural lending officer for a bank, and the farmer with the balance sheet above comes in and asks for the maximum amount your bank will lend to him. The policy of your bank is to lend up to 80% of net worth. How much could you lend him based only on his net worth?

a.	$168,000
b.	$132,000
c.	$68,000
d.	Nothing, his net worth does not meet minimum requirements.

Bart is doing some end-of-the-year analysis on his soybean crop. Answer questions 71 - 75 based on his soybean crop data.

325 acres were planted

Price per bushel = $6.15

Total yield = 11,375 bushels

Fertilizer cost = $13,000

All other variable cost was $4,625

Chemicals for the crop was $7,875

Labor and equipment cost was $16,000

71.

What was the yield per acre?

a.	35 bushels	c.	45 bushels
b.	40 bushels	d.	50 bushels

72.

What was the total expenses for this crop?

a.	$41,500	c.	$57,984
b.	$45,500	d.	$62,882

73.

What was the gross income from the soybean crop?

a.	$45,984	c.	$69,956
b.	$34,870	d.	$167,986

74.

What was the profit made on this crop?

a.	$8456	c.	$28,996
b.	$28,456	d.	$28,665

75.

What was the break-even point per bushel for the soybean crop?

a.	$34.87	c.	$3.89
b.	$4.53	d.	$3.65