If a decision-maker is using the Weighted Average Cost of Capital to calculate an appropriate discount rate and will use 60% debt and 40% equity with an interest rate on borrowed capital of 6% and the long-run return on equity of 10% and the farm is in the 28% marginal tax bracket, what is the WACC?

a. 7.8% b. 8.7% c. 6.6% d. 8.4%

44. If the interest rate is 10%, what is the present value of a dollar to be received by a producer two years from now?

a. $0.826

b. $0.857

c. $0.920

d. $1.166

e. None of the above

45. A diminishing marginal product occurs because of: a. decreasing output prices

b. increasing input prices

c. decreasing input prices

d. limits on physical or biological response to increased input levels

46. When a borrower wants to establish credit with a new lender, the possibility of success will be improved if:

a. existing loans and accounts payable are not revealed

b. several years of accurate financial statements are provided, which show

progress over time

c. the borrower will guarantee the loan alone rather than with a co-signer

d. the loan request is for a land purchase rather than for self-liquidating assets

such as feeder stock

47. The "rule of 72" says to divide 72 by the annual interest rate to estimate the number of years needed for an initial investment earning that rate to double. How long would it take for $5 earning 6% a year to grow to $20?

a. 12 years b. 24 years c. 36 years d. 48 years

48. Ways to handle risk include all of the following except: a. Shift risk

b. Reduce risk c. Self-insure d. Avoid risk e. Clean risk

10

 If the past 10 years of hay prices have been $95, 98, 101, 133, 115, 88, 111, 105, 100, 104 per ton, the average hay price is:

a. $101/ton

b. $105/ton

c. $103/ton

d. $98/ton

e. None of the above.

 If a farmer plans to borrow all money to purchase a tractor at 6 percent interest and is in the 28 percent tax bracket, the cost of capital for this investment is:

a. 6 percent

b. 1.68 percent c. 7.2 percent d. 4.32 percent

 If the tractor costs $124,000 (also the loan amount), and the 6 percent loan will be paid back in 5 equal annual payments, what will the annual payment be?

a. $29,437.15 b. $24,800.00 c. $20,666.67 d. $26,288.00

 Average total cost is equal to

a. (total variable cost)/output

b. (total fixed cost)/output

c. (total variable costs + total fixed costs)/output d. total cost X output

e. none of the above

 A farm business with declining average total costs has a. increasing returns to size

b. decreasing returns to size c. constant returns to size d. decreasing demand

e. none of the above

Which of the following would not be listed as a source of earnings on a farm income statement?

a. Loan money received from the bank to buy farm supplies. b. A patronage dividend received from the local co-op.

c. A fuel tax refund received from the government.

d. A government farm program payment received.

e. None of the above should be included.

 A good parent-child partnership is one which:

a. Assists the child in acquiring sufficient assets to get started.

b. Allows the parent to manage the operation and the child to do the physical work.

c. Allows the child to have the profits and the parent to cover any losses.

d. The parent is the boss until he retires or dies, then the child takes over.

e. Keeps the child on the farm even if income is low.

In a year of particularly high income, which of the following would be an appropriate strategy to reduce cash basis tax liability?

a. Sell some land for more than it cost.

b. Purchase some additional land for cash.

c. Purchase a new snowmobile.

d. Purchase tractor fuel needed for next year for cash.

e. Purchase protein supplement for next year on account.

 The degree to which a farm’s assets adequately cover or exceed liabilities is referred to as: a. Profitability

b. Solvency

c. Liquidity

d. Working capital

Consider a situation where you are the manager of a farm that has just completed a year-end financial analysis in December 2013. Using beginning and ending balance sheets as well as an income statement you calculate the following information for 2013:

Net cash farm income: Beginning current asset value: Beginning asset value: Beginning equity:

Interest expense:

Inventory change:

$ 164,333 $ 334,568 $1,233,550

Gross cash farm income: Beginning current liabilities: Ending asset value:

Ending equity:

Depreciation expense:

$ 744,333 $ 289,800 $1,298,000

$ 868,000 $ 87,280

$ $ $

846,225 30,000 0

 How much was your total revenue for 2013? a. $1,233,550

b. $ 744,333

c. $ 164,333

d. cannot be determined from the information given

How much was your total cash farm expense for 2013?

a. $164,333

b. $681,892

c. $580,000

d. cannot be determined from the information given

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC we need to multiply the cost of debt by the weight of debt add it to the cost of equity multiplied by the weight of equity and adjust for the tax ... View the full answer