Farm and Ranch Management Exam 3/Final

For a given total cost, the higher the yield, the lower the breakeven price.

true

What would be an example of a fixed cost on a typical crop enterprise budget?

owned land charge

Some enterprises may have more than one source of revenue

true

some enterprise budgets list all the returns and cost associated with producing a unit of a given enterprise

true

On an enterprise budget, fixed cost are also called?

Ownership cost

of output increases with no change in total cost, breakeven selling price will

decrease

the cost of production is the same as average total cost

true

What will the cost of production will be the same value as?

average total cost

enterprise budgets are useful when selecting enterprises to include a whole new farm plan

true

it is safe to assume that the input levels shown on published enterprise budgets are the profit maximizing amounts

false

Changing the value of one or more variables in a budget to test the effect on profit is?

Sensitivity analysis

There is only one possible enterprise budget for each species of livestock

false

If fixed cost on an enterprise budget were to increase, the market price needed to break even would increase

true

The lower the expected yield of an enterprise, all other things being equal, the lower the break even price

false

on a breeding livestock enterprise budget, if replaced females are assumed to be raised on a farm or ranch

the number of young females sold should be reduced

what is the unit for a crop enterprise budget?

one acre or hectare

in an enterprise budget what is another name for income over variable cost

gross margin

sensitivity analysis compares the changes in profit using several different values for a key assumption in the budget

true

break even analysis finds the value for a key number for which the expected change in profit would be zero

true

which of the following are the profit decreasing changes on a partial budget

additional cost and reduce revenue

opportunity cost are never included on a partial budget

false

a partial budget would be the most useful type of budget for estimating?

the change in profit from installing an irrigation system on one field

What might be included on a partial budget

Ownership cost, operating cost, opportunity cost

Change in profit is the only factor to consider when looking at the results of a partial budget

false

a partial budget is designed to analyze the effect of a proposed management change on

profit

a partial budget includes only those costs and revenues which will change if the proposed alternative is adopted

true

what is the purpose of completing a partial budget?

to evaluate the effect on profit of one particular management change

changing a crop rotation to plant 80 acres less wheat would be a decision which could be analyzed using a partial budget

true

a single partial budget can analyze up to four alternatives

false

The budget unit for a particular budget can be either one acre or one head of livestock, or the entire enterprise

true

a partial budget analyzes only two management alternatives at one time

true

in a partial budget a break-even can be found for only one key variable at a time

true

a partial budget includes only revenues and cost that would (blank) as a result of a change in a certain management practice

increase or decrease

only changes in variable or operating cost are included on a partial budget

false

on a partial budget analyzing a change from cow-calf production to stocker-production, using the same pasture acreage and facilities, which of the following would be included as a reduced cost

a fixed interest charge for ownership of breeding livestock

a single partial budget can analyze up to four alternatives

false

only cash expenses are shown on a partial budget

false

a cash flow budget should include the total cost of a new grain bin even if a new loan was used to pay for part of it

true

a cash flow budget can be used to monitor the farm business by

comparing actual cash inflows and outflows to the budget monthly cash flows

family living expenses and principal payments on loans should be included on a cash flow budget but non on a income statement

true

the last step in constructing a cash flow budget should be

estimating how much new current debt will be needed and how much can be repaid each month

a cash flow budget for a whole farm can be prepared on an annual, quarterly, or monthly basis

true

What can cash flow budgets be used for?

estimate when and how much money will need to be borrowed during the year

estimate when and how much debt can be repaid during the year

estimate when excess cash may be available so plans can be made to invest it

an inventory increases is shown on a cash flow budget un the time period it occurs

false

estimating the total amount of operating credit that will be owned at the end of each time period during the year is useful for

comparing to the maximum balance on an operating line that a lender will approve

depreciation and inventory changes are shown on a cash flow budget

false

When they are different, cash expenses are entered on a cash flow budget in the time period the bill will be paid and not in the time period the item was purchased

true

a projected negative cash balance at the end of the year can be made positive by

delaying proposed purchases of capital assets

carrying over less inventory or stored grain to the following year

lengthening repayment periods on term loans

A cash flow budget should contain all of the following items except

depreciation

when preparing a cash flow budget it is important to

take into account the expected timing of cash inflows and outlaws within the year

When preparing a cash flow budget it is important to

take into account the expected timing of cash inflows and outlaws within the year

The primary use of a cash flow budget is to estimate profit for the coming year

false

The size of minimum cash balance a farm business should try to show at the end of each budgeting period will depend on

the total dollars of cash inflows and outflows projected

The beginning cash balance for one time period should be the same as the ending cash balance for the previous time period

true

a cash flow budget can be used to analyze the feasibility of a new capital investment

true

both principle and interest payments on noncurrent debt are included on a cash flow budget

true

a projected negative annual cash flow indicates

projected cash inflows are less than projected cash outflows

which of the following would appear on an income statement but not on a statement of cash flows

inventory changes in crops or market livestock

the investment with longest payback period is preferred to investments with shorter payback periods

false

when a combination of debt and equity capital is used to finance a new investment the discount rate is

equal to a weighted average of the borrowing rate and the opportunity cost rate, based on the proportions of debt and equity capital invested

the internal rate of return is the interest rate they would

make net present value just equal to zero

if the net cash flows for a projected investment are expressed in after tax terms, then the discount rate used to estimate NPV should also be adjusted for the expected marginal tax rate

true

When computing the after-tax net present value of an investment

both cash flows are the discounted rate needed to be adjusted

The principle of compounding assumes that accumulated interest or net earnings form an investment ear the same rate of return as the original investment

true

income taxes can affect the profitability of an investment

true

a financial feasibility analysis look at the

net cash flows resulting from the investment and its financing terms

the simple rate of return and the internal rate of return will be the same for any investment

false

a net present value of zero means the investment has an internal rate of return

exactly equal to the discount rate

when finding the net present value of an investment considering inflation

all cash flows should be increased by their expected rate of inflation and the discount rate should be a nominal rate

which approach to investment analysis best accounts for both the scale of the investment and the variability of the cash inflows and outflows

the net present value

the annual equivalent value of an investment is

equal to annuity that would have the same net present value as the investment

the process of finding the present value of a future sum is called?

discounting

the payback period for capital investment is equal to

the number of years it takes for the accumulated net cash flows to equal or exceed to original investment

the payback period approach to investment analysis does not consider cash flows and outflows that occur after the end of the payback period

true

at 1000 of income 5 years now is worth the same as 1000 of income today

false

the most accurate way to analyze the profitability of an investment with a long life is to compute the payback period

false

if the net cash flows for a projected investment are expressed in nominal (inflated) terms, then the discount rate used to estimate the NVP should not be adjusted for the expected rate of inflation

true

net present value analysis can also be used to compare two or more financing alternatives for the same proposed capital investment

true

the farm credit system obtained loan funds from

selling bonds on the national money markets

the advantage of the borrower of obtaining operating capital under a line of credit instead of with several single payment loans

the borrower pays interest on loan funds for only the time they are actually used

increasing livestock production by building up inventories of raised breeding stock and feed can cause short-term liquidity problems

true

credit scorings a process used to

determine what interest rate to charge a borrower, based on risk considerations

sometimes a farm business may have to sell productive assets to meet short term financial commitments even though profits may be reduced in the long run

true

the return on assets is used as a measure of a farms

profitablility

an amortized loan repayment plan with a ballon payment

has more principle due in the final payment than in the others

when the farm service agency provides a marketing loan to a grain farmer

FSA will forgive part of the loan if the market price is lower than the USDA loan rate

Life insurance companies loan money to farmers mainly for the purchase of

land and buildings

an agreement by which a lender transfers funds to a farms account only as they are needed is called

a line of credit

when assets purchased under an installment sales contract, the seller becomes the creditor

true

a borrower would pay more total interest on a 10 year loan amortized under and equal payment principal plan than on the same loan amortized under an equal total payment plan

false

when a borrower wants to establish credit with a new lender, the profitability of success will be improved if

several years of accurate financial statements are provided, which show financial progress over time

the farm service agency makes loans to farmers

who do not qualify for credit from commercial sources

purchasing capital assets with short term loans leads to an improvement debt structure for the business

false

capital includes machinery and livestock as well as cash

true

the degree to which a farms liabilities are backed up by assets us known as

solvency

changes in asset values due to inflation affect the solvency of a business more than it’s liquidity

true

outside equity to increase the total resources of a farming operation can be obtained by

securing funds from non-operator investors or limited partners

which of the following would diminish a farms liquidity in the short run

establishing an apple orchard as a new major enterprise