1996 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Columbia, Missouri February 3, 1996 Please place your answers in the appropriate box on the answer sheet provided. There is only one correct answer to each question. 1. A producer sells 9 feeder steers for $68/cwt. The average weight per steer is 700 pounds. There is a 2.5% sales commission and yardage fees of $2.30 per head. The net amount received for the pen of steers would be A. $4,618.00. B. $4,240.80. C. $4,156.20. D. $461.80. E. None of the above 2. A farmer is studying the sunflower enterprise. Assuming the farmer is trying to get the maximum returns above variable costs, the farmer should produce where A. average total cost is equal to average total revenue. B. marginal cost is equal to marginal revenue. C. marginal cost is equal to average total cost. D. marginal revenue is equal to average variable cost. E. average variable costs are lowest. 3. For tax year 1995, the social security wage base is A. $17,500 B. 35,800 C. 50,000 D. 61,200 E. None of the above 4. In using the options market for hogs, the producer will usually A. lock-in a price B. lock-in a maximum price C. lock-in a minimum price D. be able to ignore basis E. both C and D 5. Fred Brown raises corn and feeds it to his hogs. This type of business structure is an example of A. vertical integration. B. horizontal integration. C. supply company. D. marketing cooperative. E. None of the above 6. Wheat yields 50 bushels per acre and the price is $3.00 per bushel. The price of canola is $0.10 per pound. The cost of production is $140 per acre for wheat and $150 per acre for canola. What yield would be needed from canola to give the same net returns as wheat? A. 1,255 pounds B. 1,545 pounds C. 1,600 pounds D. 1,635 pounds E. None of the above 7. A feedlot operator buys feeder steers, finishes them, and sells them. The operator estimates that finished steers will sell for $63 per cwt. and that it will cost $230 per head to bring them from the 700 pound purchase weight to the 1100 pound selling weight. What is the highest price the operator can pay for 700 pound feeder steers to break even? A. $78.31/cwt. B. $70.25/cwt. C. $66.14/cwt. D. $62.50/cwt. E. None of the above 8. What will the breakeven bid price for 700 pound feeder steers be in the above question if high priced corn causes feeding costs to increase to $315 per head? A. $320 per head. B. $62.45/cwt. C. $54.00/cwt. D. $51.18/cwt. E. None of the above 9. You are having a good business year and it looks as if taxable income is going to be a lot more than it was last year. Which of the following steps would be the best tax management before the end of the tax year? A. Buy $20,000 of feeder steers B. Postpone buying the $45,000 tractor until next year C. Sell 5,000 bushels of corn right now D. Put up a $15,000 pole barn this year E. Buy $15,000 worth of fertilizer for the next crop year 10. A soybean producer decides to store his soybeans in the local elevator for six months. The price at harvest is $6.00 per bushel and the elevator charges 2› per bushel per month for storage plus a 5› per bushel handling charge. He has 5,000 bushels to sell and must borrow $30,000 at 9% annual interest while he stores the soybeans. What price must he receive for his soybeans to break even and cover his storage and opportunity costs? A. $6.17 B. $6.32 C. $6.39 D. $6.44 E. None of the above 11. A $50,000 loan is amortized at 8% interest for 7 years yields annual payments of $9,604.30. How much of the first year's payment is principal? A. $4,000.00 B. $4,604.30 C. $5,604.30 D. $9,604.30 E. None of the above 12. For the above loan of $50,000, if the seventh and final payment includes $711.43 of interest, what was the outstanding principal balance after the sixth payment? A. $8,181.44 B. $8,892.87 C. $9,604.30 D. $10,315.73 E. None of the above 13. For the above loan of $50,000, how much total interest is paid over the life of the loan? A. $4,980.01 B. $17,230.10 C. $28,000.00 D. $67,230.10 E. None of the above 14. When an increase in the level of production of one enterprise causes a reduction in the level of production of another enterprise, these two enterprises are said to be A. independent. B. competitive. C. supplementary. D. complementary. E. None of the above 15. The financial progress being made in a farm business from one year to the next year is best shown by A. a change in assets. B. a change in net worth. C. a change in liabilities. D. a cash basis income tax statement. E. None of the above 16. Offsetting a position in the cash market with an equal position in the futures market to minimize price risk is called A. hedging. B. limit move. C. speculating. D. offset move. E. None of the above 17. A marketing function which tends to regulate the supply of a product and provide a stable market price is A. assembling. B. grading. C. processing. D. storing. E. None of the above 18. 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. $0.900 C. $1.100 D. $1.210 E. None of the above 19. Farmer Brown purchases a new tractor. A record keeping system which records both the addition to equipment and the reduction of cash is called A. income statement B. dual effect C. balance sheet D. double entry E. None of the above 20. In 1995, Pat Parker had net farm income of $35,000. Pat had total business assets of $760,000 and total liabilities of $350,000. Pat paid $32,000 in interest. Rate of return on equity for 1995 would be A. 8.5% B. 11.2% C. 12.8% D. 14.0% E. None of the above 21. A part-time farmer has 160 acres of land, 30 cows and can only work 400 hours per year on his farm. An acre of corn requires 3 hours of labor and yields 80 bushels. An acre of beans take 2.2 hours and yields 30 bushels. Each cow needs 7 hours of labor, 3 acres of land, and consumes 16 bushels of corn. What is the maximum number of acres of soybeans he can grow if the farmer keeps 30 cows and does not buy any corn? A. 64 B. 94 C. 104 D. 110 E. None of the above 22. A farmer purchases 500-pound feeder steers for 60› per pound and plans to sell the steers at 800 pounds. The farmer estimates the total cost of gain to be 65› per pound. The nearest breakeven price when the steers are sold at 800 pounds is A. 61.87›/pound B. 64.75›/pound C. 73.42›/pound D. 76.78›/pound E. None of the above 23. The type of life insurance which provides protection for a limited time and is usually cheaper per dollar of protection is called A. whole life. B. term. C. endowment. D. new life. E. None of the above 24. At the beginning of last year, a farmer had an outstanding loan for $125,000. The interest rate was 9% APR. If the farmer made one loan payment at the end of the year of $20,500, what was the outstanding balance at the end of the year? A. $104,500 B. $111,250 C. $113,750 D. $115,750 E. None of the above 25. The nearby hog futures contract closed at $50.85 with a local basis of $1.05 under the board. The local cash market was A. $47.95 B. $49.80 C. $50.00 D. $51.65 E. None of the above 26. 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 value of land inflates by 10%? A. 0.89 B. 0.93 C. 0.97 D. 1.12 E. None of the above 27. Specialization in crops or livestock in a farm business tends to A. increase income and increase risk. B. decrease income and increase risk. C. decrease risk and increase income. D. decrease risk and decrease income. 28. An enterprise system of accounts A. separates taxable income from nontaxable income. B. differentiates between the value of the operator's labor, management, and capital. C. involves keeping separate records of receipts and expenses for each individual product or class of products. D. is required for income tax purposes. 29. The process of finding the future value of a dollar is known as A. compounding. B. discounting. C. forwarding. D. ratio analysis. 30. If the price of a commodity is too low, the demand will be greater than the supply resulting in a A. surplus. B. boycott. C. monopoly. D. shortage. 31. A farmer is purchasing a new baler at a cost of $24,000. His dealer will finance the baler under the following terms: 10% down payment with the balance repaid in equal payments over the next five years at 8% APR. The farmer expects the baler to last for 10 years and have a salvage value of $4,000. How much interest will the farmer pay the first year of the loan? A. $1,728 B. $2,340 C. $2,800 D. $3,120 E. None of the above 32. On April 1, 1995, Lynn borrowed $25,000 to buy seed and fertilizer. On November 1, 1995, she repaid the $25,000 along with $1531.25 interest. What annual interest rate did she pay? A. 9.75% B. 10.50% C. 11.75% D. 12.25% E. None of the above 33. For 1995, the self-employment tax rate for Social Security and medicare is A. 4.58%. B. 7.65%. C. 15.30%. D. 25.00%. E. None of the above 34. A farmer has a debt : worth ratio of 2 : 1. The current liabilities total $50,000 and the non-current liabilities total $90,000. What is the value of the assets? A. $280,000 B. $210,000 C. $140,000 D. $70,000 E. None of the above 35. A cattle feeding operation has sales of $60,000, feed purchases of $40,000, other costs of $10,000, an opening inventory of $40,000, and a closing inventory of $32,000. What is the net farm income for this operation on an accrual basis? A. $2,000 B. $10,000 C. $18,000 D. $20,000 E. None of the above 36. Net farm income for a farm is $50,000. The charge for unpaid labor and management is $30,000. What is the farmer's return to equity? A. - $30,000 B. - $20,000 C. 0 D. + $20,000 E. None of the above 37. The tax you owe on each additional dollar of taxable income is called the A. Section 179 deduction. B. straight-line tax rate. C. marginal tax rate. D. federal adjusted taxable income. E. None of the above 38. A farmer who buys feeder pigs could use the options market to reduce his price risk by A. buying a hog Put option B. selling a hog Put option C. buying a hog Call option D. selling a hog Call option E. All of the above 39. A feedlot operator purchases a pen of 100 feeder steers with an average weight of 788 pounds and sells them at an average weight of 1041 pounds. Total feed cost for the pen is $13,030. Feed cost per pound of gain is equal to A. $0.440 B. $0.515 C. $0.649 D. $0.720 E. None of the above 40. A farmer placed too high a value on his calves in his closing inventory while all other records were accurate. Net capital ratio in his record summary is A. too high. B. too low. C. not affected. D. fixed. 41. An increase in the value of the U.S. dollar relative to the currency of other countries should result in A. more costly imports. B. less costly imports. C. increased exports. D. no effect on imports or exports. 42. When the size of the soybean harvest exceeds locally available farm and elevator storage, what happens to the basis? A. Basis widens B. Basis narrows C. Basis goes out of existence D. Basis is usually the same all year long 43. If the U.S. wheat industry has an inelastic demand curve, a reduction in the amount of wheat supplied to the market would A. have no effect on total revenues in the wheat industry. B. increase the total revenues in the wheat industry. C. decrease the total revenues in the wheat industry. D. cause a sharp increase in the demand for wheat. E. None of the above 44. Which of the following is considered Schedule F farm income? A. Cull breeding stock B. Crop sales C. Sales of farm equipment D. Sale of land E. Both A & B 45. A farmer who wants to have the right, but not the obligation, to sell a particular commodity at a specified price level, would use a A. cash forward contract. B. basis contract. C. call option. D. put option. E. None of the above 46. How many total acres are included in "SW 1/4 of NE 1/4 and N 1/2 of SE 1/4 of Section 15, Twp. 10N, R4W of the 5th Principle Meridian"? A. 80 acres B. 120 acres C. 160 acres D. 320 acres E. None of the above 47. How much perimeter fence would be required to completely enclose the parcel of land described in question 46? A. 1.0 mile B. 1.5 miles C. 2.0 miles D. 2.5 miles E. None of the above 48. A grain farmer who normally stores his soybeans at a local elevator has decided to use the options market to create a synthetic storage. To do so he will sell his beans at harvest and A. buy a put option. B. sell a put option. C. buy a call option. D. sell a call option. E. None of the above Use the following information to answer Questions 49-56. Present Future Present Value of Value of Value of N a $1 a $1 Annuity 1 0.913 1.095 0.913 2 0.834 1.199 1.747 3 0.762 1.312 2.509 4 0.696 1.437 3.205 5 0.635 1.575 3.840 6 0.580 1.724 4.420 49. A vineyard will produce no income during the first year, $1,000 at the end of each year for the next 4 years and $2,000 at the end of the sixth year. What is the present value of this income stream? A. $3,987 B. $4,087 C. $5,000 D. $6,000 E. None of the above 50. A beef cow produces after-tax returns at the end of the year of $80/year for 6 years and can be sold for $400 at the end of the sixth year. Assume the above table uses the appropriate discount rate and determine the current value of the cow. A. $345.60 B. $585.60 C. $663.10 D. $836.50 E. None of the above 51. With three years of income remaining in a beef cow, how much should she be worth using the above tables? A. $305.42 B. $398.17 C. $479.12 D. $505.52 E. None of the above 52. If the farmer expects interest rates to increase, but no increase in net returns to cattle, what impact is this likely to have on the present value of the beef cow? A. decrease the present value B. increase the present value C. would not change the present value D. can not tell 53. If the average tax rate is expected to increase over the next three years so that the cow no longer nets $80/year after taxes. What impact would this have on your answer to question 50? A. Increases the value B. Decreases the value C. No change in the value D. Can not tell 54. What is the annual payment on a $10,000 loan amortized over 5 years? A. $2,500.00 B. $2,604.17 C. $3,840.00 D. $6,350.00 E. None of the above 55. What discount rate is used in the above table: A. 8.7% B. 9.1% C. 9.5% D. 10.9% E. None of the above 56. What is the present value of $1 to be received 7 years in the future? A. $0.495 B. $0.530 C. $0.555 D. $0.562 E. None of the above 57. A Subchapter S corporation can have no more than A. 10 shareholders. B. 15 shareholders. C. 25 shareholders. D. 35 shareholders. E. There is no limit on number of shareholders. 58. The money you must deposit with a broker to insure performance in order to trade in the futures market is called A. basis. B. margin. C. commission. D. spread. E. None of the above 59. A feeder cattle producer has 57 head of 750 pound steers and can sell them for $80 per cwt. or send them to a custom feedlot which guarantees the feeder 55› per pound cost of gain. What price per cwt. will the producer have to receive if he sends them to the feedlot in order to break even with the offer he has at $80 per cwt. when they weigh 750 pounds? Assume he plans to feed them to a weight of 1100 pounds. Disregard the opportunity cost of capital, death loss, and shrink. A. $69.32 per cwt. B. $72.05 per cwt. C. $73.41 per cwt. D. $79.25 per cwt. E. None of the above 60. Sometime back you bought a $71.00 October live cattle future Put for $3.00. It's now late September and October futures are $65. The option expires next week and the $71.00 Puts are selling for $6.00. Your cattle are ready for market and a buyer has offered you $64.00/cwt. What is your most likely course of action? A. Sell your cattle for $64 and let the option expire B. Hold the cattle until the cash price equals the futures price C. Sell both your cattle and your Put now D. Sell your cattle now and buy another Put 61. In the event a business is forced to liquidate, which of the following would have first claim on the proceeds? A. Mortgage B. Accounts payable C. Holders of common stock D. Unsecured creditors 62. The capitalized value of land that yields $50 per year in net returns to land is $__________ if the interest rate is 10%. A. $5 B. $50 C. $500 D. $5,000 63. Corn has an expected yield of 120 bushels per acre and has a production cost of $140.00 per acre. Current market prices are $3.50 per bushel for corn and $7.25 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 dryland corn? A. 31.9 bushels B. 38.2 bushels C. 48.7 bushels D. 53.8 bushels E. None of the above 64. The maximum amount that a wife can inherit from her husband without owing any federal estate tax is A. $10,000. B. $600,000. C. $600,000 less excess gift tax. D. unlimited. E. None of the above 65. The main difference between a joint tenancy and tenancy in common is A. the surviving joint tenant will eventually own all of the land as a result of right of survivorship. B. the surviving tenant in common will eventually own all the land as a result of right of survivorship. C. only husbands and wives may be joint tenants. D. tenants in common must own equal shares of the property while joint tenants may own unequal shares (i.e., H owns 1/4 and W owns 3/4). 66. In order for limited partners to maintain their limited liability, they can not A. share in the profits of the limited partnership. B. own more than one-third of the limited partnership. C. participate in the management of the limited partnership. D. own more than 49.9% of the limited partnership. E. Both C and D. 67. You are considering the purchase of a combine, rather than continuing to hire a custom operator at $22.00 per acre. If you purchase the machine, the annual fixed costs (interest, depreciation, etc.) will be $18,000. The variable cost is $10 per acre including the extra labor. There would be no other changes in costs and returns associated with ownership and no savings other than the custom charges. How many acres must be harvested each year in order to justify (on a breakeven basis) purchase the combine? A. 833.3 B. 1,000 C. 1,200 D. 1,500 E. None of the above 68. Effective 1/1/94 a cancelled check is no longer adequate proof of a charitable contribution that is greater than A. $ 250 B. $ 1000 C. $ 5000 D. $ 10,000 E. None of the above 69. Farmer Jones has $10,000 in equipment he uses exclusively for corn. He assumes that this equipment will last 5 years and have a salvage value of $0. He plans to plant 120 acres of corn each year. Assuming an interest rate of 8%, what will be his average fixed costs per year for the next 5 years (depreciation and interest) for this machinery per acre of corn? A. $10 B. $20 C. $25 D. $30 E. None of the above 70. The maximum amount that can be claimed as a Section 179 expense deduction on your tax return is A. $5,000 B. $10,000 C. $15,000 D. $17,500 E. None of the above 71. A farmer traded a tractor with an adjusted tax basis of $5,000. The new tractor had a list price of $50,000. The dealer allowed a $20,000 trade-in for the old tractor. The farmer paid $10,000 of his own money and borrowed $20,000 to pay the balance. What is the tax basis of the new tractor? A. $15,000 B. $35,000 C. $45,000 D. $50,000 E. None of the above 72. How many pounds of 48% protein supplement must be mixed with 8% protein corn to make a ton of 16% protein feed? A. 300 pounds B. 400 pounds C. 550 pounds D. 600 pounds E. None of the above 73. Which of the following is the best measure for comparing the profitability of two farms of similar size? A. Debt/asset ratio B. Rate of return to equity capital C. Gross farm income D. Gross farm income minus capital gains 74. Individuals age 55 and over can exclude from income up to $________ of gain from the sale of their principal residence. A. $25,000 B. $50,000 C. $100,000 D. $125,000 E. None of the above 75. Using comparable sales for the purpose of appraising farmland is called the A. inventory approach to appraising. B. earnings approach to appraising. C. market approach to appraising. D. cost approach to appraising. E. None of the above. 1996 MISSOURI YOUNG FARMERS ASSOCIATION FARM BUSINESS MANAGEMENT CONTEST Columbia, Missouri February 3, 1996 KEY 1. C 21. A 41. B 61. A 2. B 22. A 42. A 62. C 3. D 23. B 43. B 63. D 4. C 24. D 44. B 64. D 5. A 25. B 45. D 65. A 6. C 26. A 46. B 66. C 7. C 27. A 47. C 67. D 8. C 28. C 48. C 68. A 9. E 29. A 49. B 69. B 10. D 30. D 50. B 70. D 11. C 31. A 51. D 71. B 12. B 32. B 52. A 72. B 13. B 33. C 53. B 73. B 14. B 34. B 54. B 74. D 15. B 35. A 55. C 75. C 16. A 36. D 56. B 17. D 37. C 57. D 18. A 38. A 58. B 19. D 39. B 59. B 20. A 40. A 60. C