Name: 
 

Farm Business Management State 1999 -- Georgia Agriculture Education Curriculum


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

1. 
Renting farm land on shares of production rather than cash results in:
a.
less risk for the landlord, more risk for the tenant.
b.
more risk for the landlord, less risk for the tenant.
c.
more risk for both the landlord and tenant.
d.
less risk for both the landlord and the tenant
 

2. 
The projected cash flow is useful in estimating:
a.
credit needs.
c.
return on assets.
b.
depreciation.
d.
profitability.
 

3. 
The elasticity of supply measures the response of a change in price on:
a.
production.
c.
income.
b.
consumption.
d.
quality.
 

4. 
An increase in the value of the U.S. dollar relative to the currency of other countries should result in:
a.
more costly imports to the U.S.
c.
increased exports to the U.S.
b.
less costly imports to the U.S.
d.
no effect on imports or exports.
 

5. 
The main difference between cash and accrual accounting is that accrual accounting includes:
a.
a charge for unpaid family labor.
c.
adjustments for changes in inventory.
b.
depreciation.
d.
sales of capital assets.
 

6. 
The present value of $100 that will be received at the end of 1 year, given a 5% interest (discount) rate is:
a.
$90.
c.
$100.
b.
$95.
d.
$105.
 

7. 
The difference between a cash price at a particular location and a specified futures contract price is called:
a.
margin.
c.
option.
b.
basis.
d.
interest.
 

8. 
In preparing a cash flow plan, one should not include which expense items:
a.
Machinery depreciation.
b.
Cash paid for machinery purchases.
c.
Principle payments on long term debt.
d.
Family living and other non-farm expense.
 

9. 
If demand and supply increased equally for an agricultural product, the results would be:
a.
The same quantity will be sold at the same price.
b.
An increased quantity will be sold at a lower price.
c.
An increased quantity will be sold at a higher price.
d.
An increased quantity will be sold at the same price.
 

10. 
If wheat and corn are common substitutes as an input into livestock feed, then an increase in the market price for corn is expected to:
a.
Increase the demand for wheat.
c.
Create an excess demand for corn.
b.
Increase the demand for corn.
d.
Decrease the quantity of corn supplied.
 

11. 
If we want to consider the time value of money in considering alternative farm investments, we should choose the investment with:
a.
The highest net present value.
b.
The most total profits over the lifetime of the investment.
c.
The highest average profits over the investment lifetime.
d.
The lowest cost.
 

12. 
If the government were to set the price of milk at an artificially high price, what is likely to occur.
a.
A surplus.
c.
A shortage.
b.
A monopoly.
d.
A slump.
 

13. 
There is a significant difference between which of these terms:
a.
Inventory – goods on hand.
c.
Hedging – speculating.
b.
Net income – profit.
d.
Total sales – gross sales.
 

14. 
The nearby hog futures contract closed at $49.80 with a local basis of $1.85. The local cash market was:
a.
$47.95.
c.
$50.00.
b.
$49.80.
d.
$51.65.
 

15. 
A farmer has total assets of $500,000 of which land is $300,000. The farmer’s debt : equity ratio is 1.0. What will the farmer’s debt : equity ratio be if the lender devalues the land by 30%?
a.
.61
c.
1.56
b.
.64
d.
1.64
 

16. 
The funds available to purchase inputs and inventory items after the sales of current farm assets and payment of all current farm liabilities is known as:
a.
asset turnover ratio.
c.
working capital.
b.
capital replacement margin.
d.
debt to asset ratio.
 

17. 
The most important reason for a complete farm record keeping system should be:
a.
to provide information for farm management decision-making.
b.
to settle insurance claims.
c.
to meet the requirement for reporting hired labor.
d.
for income tax reporting
 

18. 
A cost of production which does not vary with level of total production and includes items as depreciation, taxes, insurance, interest on investments is called:
a.
a liability
c.
total cost
b.
a variable cost
d.
a fixed cost
 

19. 
Liquidity is best described as:
a.
the ability to meet cash obligations as they come due.
b.
total assets minus total liabilities.
c.
having no long-term debt.
d.
the rate of capital turnover.
 

20. 
The difference between net worth and total assets is:
a.
capital gain.
c.
total liabilities.
b.
capital loss.
d.
net profit.
 

21. 
A business is “solvent” if total:
a.
expenditures exceed total receipts.
c.
sales exceed total liabilities.
b.
assets exceed the total liabilities.
d.
debt exceeds total equity.
 

22. 
Net worth is a measure of:
a.
managerial ability.
c.
profitability.
b.
financial position.
d.
liquidity.
 

23. 
Which of the following should be listed in the account book as the purchase of a capital asset?
a.
herd sire.
c.
registration fees for purchased calves.
b.
fertilizer purchased in the fall.
d.
new battery for the tractor.
 

24. 
A stated advantage of sole proprietorship compared to a corporation is:
a.
limited liability.
b.
greater resources.
c.
fewer legal constraints.
d.
continued operation after the death of an owner.
 

25. 
The major advantage of renting or leasing over purchasing land or machinery is to:
a.
reduce income taxes.
c.
increase depreciation allowances.
b.
release capital for other uses.
d.
improve output per worker.
 

26. 
Producers can diversify or specialize in their production.  When producers diversify they are trying to manage some of their risk.  When specializing they are:
a.
increasing efficiencies in the enterprise.
b.
reducing price risks of their products.
c.
creating excess production in the market.
d.
distributing labor requirements over the year.
 

27. 
In a free market, the role of price is to serve as a guide:
a.
in the decision of what, when, and the quantity to produce.
b.
in limiting demand.
c.
in limiting supply.
d.
in controlling consumption.
 

28. 
Forward contracting provides the farmer with:
a.
greater flexibility at time of sale.
c.
the possibility of hedging.
b.
the possibility of speculating.
d.
less price uncertainty.
 

29. 
At the beginning of last year, you had an outstanding loan for $90,000.  The loan carries an interest rate of 12% annual percentage rate.  You make one loan payment at the end of the year for $25,400.  What is the outstanding balance at the beginning of this year?
a.
$55,000
c.
$75,400
b.
$64,600
d.
$79,200
 

30. 
When a farmer increases his investment in land, buildings, and equipment without increasing the total units of production, the cost per unit of production:
a.
decreases.
c.
varies with the operator.
b.
increases.
d.
remains the same.
 

31. 
Purchase of a call option on corn means:
a.
the buyer is required to sell a corn futures contract at a set price.
b.
The buyer may, but is not required to sell a corn futures contract at a set price.
c.
The buyer may, but is not required to buy a corn futures contract at a set price.
d.
The buyer is required to buy a corn futures contract at a set price.
 

32. 
Corn yields 90 bushels per acre and has a production cost of $140 per acre.  Current market prices are $2.50 per bushel for corn and $6.00 per bushel for soybeans.  Soybeans can be raised at a production cost of $110 per acre.  At what breakeven yield per acre would soybeans generate the same net return per acre as corn?
a.
25 bushels.
c.
37 ½ bushels.
b.
32 ½ bushels.
d.
39 bushels.
 

33. 
The return an input would have earned in its best alternative use is called its:
a.
fixed cost.
c.
gross income.
b.
opportunity cost.
d.
total revenue.
 

34. 
It is profitable for a farmer to borrow money to expand his farm business when the borrowed money:
a.
will increase volume of business.
c.
can be secured at a low interest rate.
b.
can improve the level of production
d.
returns more than the cost.
 

35. 
A dollar received tomorrow can be worth less than a dollar today, because of:
a.
inflation.
c.
the time value of money.
b.
capital budgeting.
d.
taxation.
 

36. 
If a hedger is to carry a hedge through completion, the hedger:
a.
will always make a profit.
b.
must always deliver the hedged commodity to the local elevator.
c.
must be prepared to meet all margin calls.
d.
will take a higher risk.
 

37. 
Accrued interest on a balance sheet refers to:
a.
interest that is past due.
b.
interest that has accumulated since the last loan payment.
c.
interest on a short-term debt.
d.
interest forgiven by the lender.
 

38. 
A livestock producer wishing to use futures markets to hedge the price of cattle to be sold in the future would initially:
a.
buy futures contracts expecting to sell the contracts when he sells his cattle.
b.
buy futures contracts expecting to buy more contracts when he sells his cattle.
c.
sell futures contracts expecting to buy them back when he sells his cattle.
d.
sell futures contracts expecting to sell more contracts when he sells his cattle.
 

39. 
A feedlot operator purchased 100 feeder steers with an average weight of 700 pounds and sold them at an average weight of 1050 pounds.  Total feed cost for the pen was $18,000.  Feed cost per pound of gain was equal to:
a.
$0.514
c.
$0.720
b.
$0.600
d.
$0.810
 

40. 
An advantage of making an estate the beneficiary of a life insurance policy is to:
a.
reduce estate tax liabilities.
c.
provide insurance protection to heirs.
b.
decrease the size of the estate.
d.
provide liquid funds to satisfy tax liability.
 

41. 
Net farm income represents a return to what factors of production?
a.
management, capital, paid labor, and unpaid labor.
b.
management, capital, and unpaid operator and family labor
c.
all land, total capital, and labor
d.
equity capital and management
 

42. 
A banker loaning money to farm operators may require a cash flow analysis to:
a.
determine the profitability of a farm operation.
b.
collect data to complete the net worth statement.
c.
reduce the farmer’s chance of obtaining a loan.
d.
evaluate loan repayment potential.
 

43. 
Rate of return on investment for a farm business is calculated by:
a.
dividing total assets by total liabilities.
b.
subtracting total liabilities from total asset value.
c.
dividing return to capital by average total assets.
d.
dividing return to equity.
 

44. 
A legal document by which a property owner transfers the title of his land to someone to manage and safeguard for the benefit of beneficiaries is a:
a.
trust.
c.
corporation.
b.
partnership.
d.
sole proprietorship.
 

45. 
The producer of a commodity which has an inelastic demand knows that:
a.
if less is produced by the industry, total industry revenue will increase.
b.
if more is produced by the industry, total industry revenue will decrease.
c.
if the price of the commodity increases, industry revenue will decrease.
d.
the price of the commodity has no effect on the total industry revenue.
 

46. 
In developing an enterprise budget, crop insurance should be considered as:
a.
a variable cost.
c.
an opportunity cost.
b.
a fixed cost.
d.
an overhead cost.
 

47. 
Which of the following does not appear on the net worth statement?
a.
value of livestock inventories
c.
cash in the bank
b.
long-term liabilities
d.
net farm income
 

48. 
The process of finding the present value of a dollar to be received at some future date is known as:
a.
compounding.
c.
forwarding.
b.
discounting.
d.
ratio analysis.
 

49. 
Inflation means:
a.
a dollar will buy more in the future than it will buy today.
b.
the prices are which the interest rate will equal the inflation rate.
c.
the farmer’s profit margin will increase over time due to higher prices.
d.
the purchasing power of a dollar declines over time.
 

50. 
The cost of producing one additional unit of output is called:
a.
opportunity cost.
c.
average cost.
b.
substitution cost.
d.
marginal cost.
 
 
Use the balance sheet information listed below to answer questions 51 - 55.

Balance sheet

Current assets            $109,214
Intermediate assets      $166,000
Fixed assets            $457,000
Short-term liabilities      $61,550
Intermediate liabilities      $8,500
Long-term liabilities      $177,000
 

51. 
What is the farm’s net worth?
a.
$247,000
c.
$485,214
b.
$457,000
d.
$732,214
 

52. 
What is the farm’s percent equity?
a.
33.7%
c.
56.2%
b.
50.9%
d.
66.3%
 

53. 
What is the farm’s net capital ratio?
a.
1.50 : 1
c.
2.00 : 1
b.
1.78 : 1
d.
2.96 : 1
 

54. 
What is the farm’s current ratio?
a.
1.50 : 1
c.
2.00 : 1
b.
1.78 : 1
d.
2.96 : 1
 

55. 
What is the farm’s dollars of working capital?
a.
$47,714
c.
$247,000
b.
$157,5000
d.
$485,214
 
 
The information listed below will be used to answer questions 56 - 60.

      The Archer farming operation has 2,000 bushels of corn (56 pounds per bushel) stored at a rented farm.  They can sell it at a local elevator for $2.60 per bushel.  There is a hog feeding facility available on the farm, and the Archers are considering feeding the corn to the hogs.  They can buy 50 pound feeder pigs for $0.70 per pound delivered to the farm.
      The Archers will grind and mix their own hog feed.  The ration consists of 80% corn and 20% commercial feed supplement.  They can get the commercial supplement delivered for $210 per ton.  They plan to market the hogs at 260 pounds.  They expect a 3.8 to 1 feed conversion ratio.
 

56. 
How much commercial feed supplement will they need to buy to mix with the 2,000 bushels of corn?
a.
22,4000 pounds or 11.2 tons
c.
50,000 pounds or 25 tons
b.
28,000 pounds or 14 tons
d.
112,000 pounds or 56 tons
 

57. 
Given the limited corn supply, how many pounds of gain (at 3.8 to 1) can they get if they feed an 80-20 ration?
a.
28,000 pounds
c.
35,000 pounds
b.
29,474 pounds
d.
36,842 pounds
 

58. 
What is the feed cost per ton of feed using the 80-20 ration?
a.
$92.85
c.
$163.15
b.
$116.29
d.
$210.00
 

59. 
The Archers buy 175 feeder pigs weighing 50 pounds and plan to feed them to 260 pound market weight.  What is their total feed cost with the 3.8 : 1 feed conversion ratio?
a.
$2136.82
c.
$8119.95
b.
$6483.75
d.
$9756.15
 

60. 
If costs other than feed and pigs ere $25 per pig, what is the breakeven selling price?
a.
$39.77 per hundredweight
c.
$40.42 per hundredweight
b.
$40.03 per hundredweight
d.
$40.92 per hundredweight
 
 
Use the following information to answer questions 61 – 63.

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     

Expense by Enterprise (includes all costs except labor and management)

Soybeans            $ 48,000
Sunflowers               36,000
Wheat               17,000
Hogs               80,000
 

61. 
What is the net return per unit ( per hog ) for the hog operation?
a.
$200
c.
$10
b.
$20
d.
$100
 

62. 
What is the net return to labor and management for this farm?
a.
$28,000
c.
$18,000
b.
$209,000
d.
$180,000
 

63. 
This farmer enjoys raising hogs and would like to do it full time, eliminating all other enterprises. How many hogs would ha have to produce per year, based on the above figures, to maintain his income?
a.
1400
c.
2000
b.
1800
d.
2800
 
 
Data for questions 64 – 67.

Pounds of            Yield per
Fertilizer            Acre
                       

400      25 bu.
600      30 bu.
800      45 bu.
1000      52 bu.
1200      55 bu.
1400      56 bu.
1600      54 bu.

-      Price received for the crop is $6.50 per bushel.
-      Total fixed cost is $100 per acre.
-      Variable cost is equal to $140 per acre plus the cost of fertilizer @ $7 per hundred pounds.
-      Scope = 200 acres.
 

64. 
Based on the data provided, how many pounds of fertilizer should be applied to maximize profit?
a.
1000 lbs.
c.
1400 lbs.
b.
1200 lbs.
d.
1600 lbs.
 

65. 
What is the breakeven point or cost of production ( per bushel ) at the point of maximum profit?
a.
$5.15
c.
$5.47
b.
$5.89
d.
$5.96
 

66. 
At which point of fertilization does the point of diminishing returns occur?
a.
1000 lbs.
c.
1400 lbs.
b.
1200 lbs.
d.
1600 lbs.
 

67. 
It is very important for a producer to know how much yield he can expect from an additional unit of an input such as fertilizer. Suppose this producer choose to put on 800 lbs. of fertilizer because that is what his neighbor does. What would be his profit or loss?
a.
a profit of $700
c.
a loss of $700
b.
a profit of $600
d.
a loss of $600
 
 
Use the following information to answer questions 68 – 72.

The quantity of corn produced by Farmer John is in excess of the amount needed to feed all their livestock. Farmer John will be able to sell 15,000 bushel of excess grain. Use the information provided and your knowledge of commodity marketing to answer the following questions. Each corn futures contract is 5,000 bushels.

Assume that on May 1:
-      A put option for October corn with a strike price of $3.50 per bushel is 20 cents per bushel.
-      The October basis for corn at the local market is 15 cents.
-      The current cash price for corn is $3.25.
 

68. 
If Farmer John chose to purchase the put option for October corn, what is the purchase price for one option?
a.
$1,000
c.
$17,500
b.
$3,000
d.
$52,500
 

69. 
If Farmer John purchases and exercises the option, what is the expected net price to be received for corn. (NOTE: Assume basis is 15 cents)
a.
$3.50 per bushel.
c.
$3.30 per bushel.
b.
$3.35 per bushel.
d.
$3.15 per bushel.
 

70. 
If Farmer John could exercise his option when the basis was only 8 cents ( a narrower basis ), what would be the expected net price?
a.
$3.50 per bushel.
c.
$3.30 per bushel.
b.
$3.42 per bushel.
d.
$3.22 per bushel.
 

71. 
If Farmer John anticipates a price decline of 5 cents per bushel ($3.20) in the local cash market should he purchase the option? (NOTE: Assume the basis is 15 cents)
a.
Yes.
c.
Either.
b.
No.
d.
Not enough information to decide.
 

72. 
If Farmer John anticipates a price decline of 15 cents per bushel ($3.10) in the local cash market should he purchase the option? (NOTE: Assume the basis is 15 cents)
a.
Yes.
c.
Either.
b.
No.
d.
Not enough information to decide.
 
 
Data for questions 73 – 75.

Doug is considering raising soybeans instead of corn. Given the following information, help him make the correct decision.

-      100 acres to be planted.
-      Projected corn income ( gross ) = $300 per acre.
-      Projected soybean income ( gross ) = $280 per acre.
-      Cost of fertilizer is $40 less per acre for soybeans.
-      Cost of fuel is $20 less for soybeans.
-      Chemical cost is $25 more per acre for soybeans.
 

73. 
What would be the net change in income for Doug if he grew soybeans instead of corn?
a.
+ $8379.
c.
+ $873.
b.
+ $1500.
d.
-  $5859.
 

74. 
What will be Doug’s gross returns with the proposed change?
a.
$8379.
c.
$28,000.
b.
$5859.
d.
$22,050.
 

75. 
The income from soybeans reflects a projected yield of 50 bushels per acre. What is the projected price per bushel?
a.
$3.62.
c.
$3.20.
b.
$5.60.
d.
$8.67.
 



 
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