Farm Business Mng Part II Test/Key - ND FFA

2013 STATE FFA FARM BUSINESS MANAGEMENT TESTPART 2Financial Statements(FINPACK Balance Sheets found in the resource information)Please use the Market Value when making the calculations for theZimmerman Farm. Also round the number to the nearest hundredth.1/1/2011 1/1/2012 1/1/2013Current Ratio 2.10 1.32 1.92Ownership Equity 0.71 0.69 0.72Leverage Ratio 0.42 0.46 0.46Current Debt Ratio 0.45 0.52 0.56Debt to Asset Ratio 0.29 0.31 0.28Balance Sheets and Income Statement1. The change in Net Worth from 1/1/2012 to 1/1/2013 was:a. $191,791b. $179,061c. $325,982d. $370,8522. Which Ratio has the most negative trend from 2011 to 2013?a. Current Ratiob. Current Debt Ratioc. Leverage Ratiod. Debt to Asset Ratio3. On which date was the Zimmerman’s current ratio thestrongest?a. 1/1/2011b. 1/1/2012c. 1/1/20131

4. What is the Zimmerman Farm’s Operating Profit Margin ratiofor 2012 based on the Farm Income Statement from page 1 ofthe resource packet, assuming they purchased no feederlivestock or feed?a. 0.29b. 0.34c. 0.36d. 0.395. The Zimmerman’s 1/1/2013 Leverage ratio would becategorized as:a. Vulernableb. Intermediatec. Strong6. Using the 1/1/2013 Balance Sheet, calculate the thepercentage of total assets that are classified as long term(use market value)?a. 22%b. 25%c. 27%d. 29%7. On the 1/1/2013 Balance Sheet, how much of the Zimmerman’snet worth is gained from the difference between market andcost values?a. $15,120b. $627,519c. $1,625,106d. $58,7018. On the income statement on page 1 of the resource packet,what are some possible causes for the large positiveinventory change?a. Poor Crop Yields in 2012b. Low Crop Prices in 2012c. Both A and Bd. None of the above2

9. The ratios from 1/1/2011 to 1/1/2013 indicate what possiblescenarios:a. 2010 and 2012 were financially better years.b. 2009 had better crop yields.c. 2011 increased the amount of working capital.d. all of the above10. Based on the Balance sheets for 1/1/2012 and 1/1/2013, howmuch have the Zimmerman’s decreased their farm workingcapital?a. $91,880b. $230,847c. $314,716d. $222,82611. What is a possible reason for the increase in theZimmerman’s working capital from 1/1/2012 to 1/1/2013?a. Increase in crop inventoriesb. Increase in operating loan balancec. Both A & Bd. None of the Above12. What would be the sensible choice for the Zimmerman’s to dowith their increased working capital?a. Bid with no limits at the next local land auctionb. Use it for next year’s input expensesc. Go on a 2 week Cruise next winterd. All of the above3

Projected BudgetAaron Zimmerman has decided on the following crop and livestockprogram. The total bases for this farm in 2013 are 500 acres forwheat with a 47 bushel yield. Aaron also has a Corn base of 500acres with a 121 bushel program yield and a Soybean base of 425acres with a 33 bushel program yield. The Food, Conservation,and Energy Act of 2008 rates for this year are $.52 for wheat,$.44 Soybeans and $.28 for corn. The Farm Bill extension changeddirect payments to 85% for 2013. Use the Average Farm fromRegion 3 to determine cost.CROP ACRES Yield Price Gross Income Cost Net IncomeSpring Wheat Owned 150 48 Bu. $7.31Spring Wheat Rented 150 48 Bu. $7.31Corn Owned 300 125 Bu. $4.68Corn Rented 500 125 Bu. $4.68Soybeans Owned 400 35 Bu. $11.28Soybeans Rented 450 35 Bu. $11.28Hay, Mixed Alfalfa/Grass Owned 280 1.57 Tons $50/TonPasture Owned 500 1.1 AUM’s $18/AUMCows 50 Head Gross Retun $910/Cow13. Calculate the projected return over total direct andoverhead costs using the Zimmerman’s projected crop andlivestock plan. Use the prices that are projected and donot include any projected government payments. (Use Region3 Average Profit Farms for all farms for the crop andlivestock analysis from your resource unit. Also assume thepasture costs on the livestock enterprise analysis arecorrect, and that all crop expenses are correct, includingland rent, but use the projected prices and yields for bothlivestock and crops.)a. $151,798b. $201,334c. $251,489d. $301,5904

14. Would the rented Corn acres cover the direct cost per acreif the rent cost was $125/acre (don’t consider governmentpayments)?a. Yesb. No15. Based on the Zimmerman’s Projected Budget, which croplisted below has the highest return over direct costs peracre on owned land (use the average farm on the enterprisebudgets)?a. Cornb. Soybeansc. Wheatd. Hay16. Based on the Zimmerman’s Projected Budget, what should theydo to increase their profit, assuming overhead expenses tobe fixed and that they can’t find additional acres?a. Decrease Wheat and Plant more Cornb. Decrease Soybeans and Plant more Cornc. Buy more Cowsd. All of the Above17. Mr. Zimmerman’s son is looking to come back to the farm.He could rent 300 acres of land from their neighbor for$80/acre, if he has the same yields and price as hisfather and plants all soybeans, what is his projectedprofit per acre (Use average farm on enterprise budgets)?a. $91.50b. $93.20c. $95.70d. Can’t tell from the information given18. Aaron could sell heifer calves at 600 lbs. for $1.40/lb andbuy bred heifers for $1250.00/head, or he could keep hisown heifers for replacements. Which is a better financialdecision (use average farm on enterprise budgets)?a. Keep his own heifersb. Buy bred heifers5

19. If Aaron would have planted just one crop on all of hisrented acres, which would have given him the greatest NetReturn based off only the 40-60% farm in Region 3?a. Spring Wheatb. Soybeansc. Cornd. Barley20. If 2013 is a poor year for crop conditions and yieldsdecrease by 20%, will Aaron’s rented wheat still beprofitable if prices and costs stay the same?a. Yesb. Noc. Maybed. It wasn’t profitable with the original yieldInvestment AnalysisThe Zimmerman’s have the opportunity to purchase an additional160 acres of crop land for the upcoming year for $400,000. Theyare looking at 3 different options for financing: 50% down and4.0% interest for 10 years, 40% down and 5% interest for 15years, and 30% and 6% interest for 20 years.21. Which option will have the least total cost?a. 50% Downb. 40% Downc. 30% Down22. If Aaron expects no immediate return on his down payment,and the real estate tax is $6/acre, what would his paymentbe equivalent to in rent per acre if he chooses the leasttotal cost option?a. $140b. $150c. $160d. $1706

23. Which option will do the least harm to Aaron’s cash flow inthe first 2 years after the purchase?a. 50% Downb. 40% Downc. 30% Down24. If Aaron’s corn cost on owned land is $435/acre, will 120bushel corn priced at $4.70/bu. be able to cover his landpayment of the 40% down option and the $6 real estate tax?a. Yesb. Noc. Not enough information25. Which purchase option creates the least amount of risk forAaron?a. 50% Downb. 40% Downc. 30% Downd. Not Enough Information26. Aaron’s brother is the owner of a highly successfulmanufacturing company, and would consider buying the landand share renting it to Aaron for 25% of the gross cropincome each year. If Aaron can raise 120 bushel corn for$4.70/bu. will it be cheaper to have his brother buy theland?a. Yesb. NoMr. Zimmerman has decided it is time to upgrade his sprayer.The new unit is priced at $120,000 straight out, or $70,000 plusthe trade of his old sprayer. If he trades, Aaron can put down20% and have 5% interest for 5 years or he can put down 25% andhave 4% interest for 4 years. If he purchases the new onestraight out he can put down 10% and have 5% interest for 4years, plus his neighbor has offered him $55,000 for his oldsprayer so he will only have to 65,000 out of pocket expense.27. Which option will have the lowest payment each year?a. 10% Downb. 20% Downc. 25% Down7

28. Which option has the least total cost?a. 25% Downb. 20% Downc. 10% Down29. If Aaron farms 2000 acres and can have custom sprayingdone for a total of $5/acre each year, are any of theoptions cheaper than using the custom service?a. Yesb. Noc. Not sure30. How many acres would Aaron have to custom spray to makehis payment for the 25% down option at $5/acre?a. 3900b. 2586c. 3300d. 289531. If Aaron used the straight purchase option of 10% downand the deal to sell his old sprayer fell through, whatwould be the total cost of that option?a. $133,824b. $72,488c. $135,978d. $71,400Projected Cash Flow In Resource Unit32. Does Aaron Zimmerman’s Farm Cash Flow for 2013:a. Yesb. No33. What month begins with the lowest Operating LoanBalance:a. Decemberb. Octoberc. Juned. May8

34. If there is a 10% decrease in gross income over theyear, how will it impact Aaron’s projected Net FarmIncome for 2013?a. Change Term Debt Coverage Ratio to 2.25b. Change Term Debt Coverage Ratio to 1.94c. Change Term Debt Coverage Ratio to 2.24d. Won’t change it at all35. What is the Zimmerman’s projected Net Cash Flow for 2013?a. $96,852b. $992,705c. $339,455d $283,11036. What is the Zimmerman’s 2013 projected Net Worth Change?a. $96,852b. $992,705c. $339,455d. $238,11037. What are Aaron’s total inventories projected to changeby in 2013?a. $747,676b. $104,672c. $643,004d. Can’t tell from the information availableFamily LivingUse the information in the resource information section toanswer the questions.38. Based on the total family living excluding Other nonfarmexpenditures for region 3, does the Zimmerman’scash flow for family living fall closest to?a. Low 20%b. High 20%c. The average Farmd. 40-60%9

39. Total cash family living and investments and non-farmcapital purchases for the Average of all farms inRegion 3 was:a. $68,862b. $56,667c. $153,681d. $96,94640. How many acres of rented corn would Aaron need to cover hisprojected family living expenses in 2013? (Use Region 3average farm for crop enterprises)a. 189b. 197c. 205d. 213MARKETINGUse the Market information in the Resource Information Section.Assume a negative $0.65 per bushel nearby basis and a negative$0.85 new crop basis for Soybeans, a $0.02 per bushel commissionfor futures, and a $0.05 per bushel per month carrying charge.Carrying charge would start on November 1st. Commission onfeeder cattle is $2.50/cwt for options and futures and an evenbasis for the feeder cattle. The commission for selling thecalves at the local auction is $14.00/head. On April 18, 2013,the Zimmerman’s had 20000 bushels of soybeans on hand. Theirprojected production for 2012 will give them an additional33,250 bushels of Soybeans and 100,000 bushels of Corn to sell.Aaron will raise 50 calves that will be weaned on November 1 andwill average 625 lbs, and he will background his calves, takingthem to 825 lbs before they are sold at the local auction.41. If Aaron contracts his corn at Gavilon Grain inCarrington, what price can he lock in for his 2013crop?a. $4.48b. $4.73c. $5.05d. $6.0010

42. A month ago, Aaron could have sold his old crop cashsoybeans at Central City Grain for $14.42, if he haulsit in today, how will the value of his grain havechanged?a. $-1.00b. $-3.05c. $+1.00d. $+3.0543. The Zimmerman’s can lock in what price for theirfeeder cattle if they want to sell them in Jan. 2014?a. $145.37/cwtb. $149.57c. $147.07d. $143.5744. How many futures contracts would Aaron need to sell toprice 75% of his anticipated Corn production for 2013?a. 5b. 10c. 15d. 2045. If the Zimmerman’s purchased a 140/cwt March 2014 feedercattle put for 1.00 per cwt, what floor have they lockedin?a. $133.30b. $139.00c. $140.00d. $137.3046. If Aaron used the futures market to price his 2013 soybeansfor November today, and when he delivers them in Novemerthe futures price is $11.00, what cash price has he lockedin if you figure a negative 65 cent basis?a. $10.35b. $12.15c. $11.48d. $13.0011

INCOME TAXBased on the Zimmerman’s Federal Tax Schedule found in the resourcepacket:47. What is their gross farm income?a. $928,095b. $878,859c. $49,200d. Cannot tell from the schedule F48. What is their Net Farm Income?a. $928,095b. $878,859c. $49,200d. Cannot tell from the schedule F49. Why does the Zimmerman’s Schedule F appear different than theirFarm Income Statement on Page 1 of the Resource Packet?a. They are trying to hide income on their taxesb. Depreciation can be accelerated for tax purposesc. They are showing an increase in family living expensesd. There is no difference between the two50. How Much will the Zimmerman’s owe in Federal Taxes for 2010?a. $49,200b. $60,500c. They Will Get a Refundd. You can’t tell by looking only at Schedule FPAGE 12