2016 STATE FFA FARM BUSINESS MANAGEMENT TEST
PART 2
Financial Statements
(FINPACK Balance Sheets found in the resource information)
Please use the Market Value when making the calculations for the Zimmerman Farm. Also round the number to the nearest hundredth.
1/1/2014 / 1/1/2015 / 1/1/2016Current Ratio / 1.17 / 0.78 / 0.61
Ownership Equity / 0.72 / 0.71 / 0.75
Leverage Ratio / 0.39 / 0.40 / 0.33
Current Debt Ratio / 0.86 / 1.28 / 1.63
Debt to Asset Ratio / 0.29 / 0.29 / 0.25
Balance Sheets and Income Statement
1. The change in Net Worth from 1/1/2015 to 1/1/2016 was:
a. -$42,847
b. $42,847
c. -$62,847
d. $62,847
2. The current ratio is trending?
a. Stronger
b. Steady
c. Weaker
3. When looking at their current ratio and taking into account their balance sheet position, how can the Zimmerman’s lender service their debt?
a. Nothing can be done.
b. Borrow them more on their current operating note.
c. Move some operating debt to intermediate debt by terming it out.
d. None of the above.
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4. Based on page 1 of the resource packet what was the Zimmerman’s Net Farm Income for 2016?
a. $21,189
b. $33,943
c. $664,589
d. $823,293
5. What percent of 2015 expenses was interest?
a. 3.2
b. 5.2
c. 7.2
d. 9.2
6. What category does the answer to number 5 put the Zimmerman’s in for interest expense ratio?
a. Vulnerable
b. Intermediate
c. Strong
7. What is the Zimmerman’s Total Working Capital on 1/1/2016?
a. -$160,855
b. $160,855
c. -$128,101
d. $128,101
8. What is the reason for the lack of working capital?
a. High operating debt
b. Low Cash Balances
c. Low Grain Inventory Values
d. All of the Above
9. The ratios from 1/1/2015 to 1/1/2016 indicate what possible scenarios:
a. The Zimmerman’s are increasing current debt load
b. The Zimmerman’s are decreasing overall debt
c. both a and b
d. none of the above
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10. What is the Operating Profit Margin Ratio for the Zimmerman’s in 2015 if they purchased no feeder livestock or feed?
a. 0.02
b. 0.03
c. 0.04
d. 0.05
11. How would this Operating Profit Margin be considered?
a. Vulnerable
b. Intermediate
c. Strong
12. What steps could the Zimmerman’s take to improve their balance sheet positions during the year 2016?
a. Decrease current debt
b. Increase long term debt
c. Win the lottery
d. All of the above
Projected Budget
Aaron Zimmerman has decided on the following crop and livestock program. Use the Average Farm from Region 3 to determine cost.
CROP / ACRES / Yield / Price / Gross Income / Cost / Net IncomeWheat Rented / 150 / 62 Bu. / $4.85
Barley Owned / 150 / 73 Bu. / $4.87
Barley Rented / 300 / 71 Bu. / $4.87
Corn Rented / 500 / 127 Bu. / $3.00
Soybeans Owned / 400 / 29 Bu. / $8.25
Field Peas Rented / 450 / 40 Bu. / $7.25
Hay, Alfalfa/Grass Owned / 280 / 1.52 Tons / $50/Ton
Pasture Owned / 500 / 1.2 AUM’s / $21/AUM
Cows / 50 Head / Gross Return / $995/Cow
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13. Calculate the projected return over total direct and overhead costs using the Zimmerman’s projected crop and livestock plan. Use the prices that are projected and do not include any projected government payments. (Use Region 3 Average Profit Farms for all farms for the crop and livestock analysis from your resource unit. Also assume the pasture costs on the livestock enterprise analysis are correct, and that all crop expenses are correct, including land rent, but use the projected prices and yields for both livestock and crops.)
a. $51,515.50
b. $34,975.00
c. $34,837.00
d. $30,292.60
14. Does the answer for question 13 leave the Zimmerman’s enough projected income to cover their $68,000 worth of intermediate debt payments in 2016?
a. Yes
b. No
15. Based on the Zimmerman’s Projected Budget, which crop listed below has the highest return over direct costs per acre on owned land (use the average farm on the enterprise budgets)?
a. Barley
b. Soybeans
c. Hay, Alfalfa/Grass
d. Pasture
16. Based on the Zimmerman’s Projected Budget, what should they do to increase their profit, assuming overhead expenses to be fixed and that they can’t find additional acres?
a. Plant more Wheat and less Barley
b. Plant more Field Peas and less Wheat
c. Plant more Corn and less Field Peas
d. Plant more Alfalfa/Grass and less Barley
17. Mr. Zimmerman’s son is looking to come back to the farm.
He could rent 250 acres of crop ground at the average cost for rented corn ground. What would his total profit be if he has average corn yields and a $3.00 price? (Use average farm on corn budgets)?
a. -$17,777.50
b. -$28,087.50
c. $17,777.50
d. $28,087.50
18. Aaron could keep 20 heifer calves and breed them to be sold for $1750/head. What would his total profit be if all heifers get bred and he could have sold them all as calves for $1150/head? (Use average farm on replacement heifer budget.)
a. $5,160.00
b. $ 323.00
c. $19,699.00
d. $3,740.00
19. Would it be a wise decision for Aaron to rent additional land for $105 per acre and plant it all to Corn assuming it requires no additional equipment?
a. Yes
b. No
c. Not Enough Information
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20. How many cows would it take Aaron to pay for his family living if his family falls into the low 20% category for total family living expense?
a.678
b.532
c.346
d.214
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Investment Analysis
The Zimmerman’s are looking to purchase a new vertical tillage implement. The local dealership has the piece they are looking for with a list price of $75,000. Financing is available for 5 years at 5% interest. They could also purchase a used unit for $60,000 and finance it at 4% for 4 years. Neither option requires a down payment.
21. Which option will have the least total cost?
a. New
b. Used
c. Can’t be figured with the given information
22. Which option will have the least total cost for the first 4 years?
a. New
b. Used
c. Can’t be determined from the information
23. Which option will give Aaron the most equity after 7 years?
a. New
b. Used
c. Can’t be determined from the information
24. Which option has the lowest yearly payments during its lifetime.
a. New
b. Used
c. Can’t be determined from the information
Aaron can also lease a new tractor to pull his tillage equipment. The available lease is $10,000 down with 5 yearly payments of $10,000 and a $50,000 buyout at the end of the lease.
25. What are some possible benefits of the leasing option?
a. Use of a new tractor at a low cost per hour
b. Being able to return the tractor at the lease’s end
c. Not having to list another loan on his balance sheet
d. All of the Above
26. What are some possible pitfalls of the leasing option?
a. Unless the buyout is used no equity is gained
b. Not having to list another loan on his balance sheet
c. Payments may change
d. All of the Above
27. If Aaron decides to use the trade value on his current tractor towards his lease payments what does he lose?
a. Working Capital
b. The ability to Cash Flow
c. The equity in his current tractor
d. All of the above
28. What is the total cost of the tractor if Aaron elects to buy it out at the end of the lease?
a. $110,000
b. $100,000
c. $90,000
d. $50,000
The Zimmerman’s would like to build a storage building to house their equipment. The estimated cost to construct the building is $150,000. If he puts 20% down his lender will finance the rest for 7 years at 5% or for 15 years at 7%
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29. Which option has the least total cost?
a. 7 year option
b. 15 year option
c. Can’t tell from the information
30. What is the yearly payment if he chooses the 7 year option?
a. $13,164
b. $20,736
c. $25,117
d. $39,274
31. Given Aaron’s current balance sheet and 2016 cash flow projections do you feel this would be a good investment?
a. Yes
b. No
c. Maybe
d. Who cares
Projected Cash Flow In Resource Unit
32. Does Aaron Zimmerman’s Farm Cash Flow for 2016:
a. Yes
b. No
33. What is Aaron’s projected Net Worth Change:
a. $72,500
b. $104,501
c. -$14,058
d. -$85,336
34. Will Aaron be able to make his term debt payments and afford his planned Family Living in 2016?
a. Yes
b. No
c. Maybe
d. Who Cares?
35. According to the Cash Flow plan what will happen with Aaron’s working capital during 2016?
a. Increase
b. Decrease
c. Stay the Same
d Can’t tell from the Cash Flow
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36. If you were Aaron’s lender would you loan him money based on this cash flow?
a. Yes
b. No
37. How could Aaron make this cash flow better?
a. Reduce non-farm income
b. Increase family living
c. Both A and B
d. None of the Above
Family Living
Use the information in the resource information section to answer the questions.
38. Based on the total family living excluding Other non-farm expenditures for region 3, does the Zimmerman’s cash flow for family living fall closest to?
a. Low 20%
b. High 20%
c. The average Farm
d. 40-60%
39. What did the average farm in Region 3 pay for Health Insurance:
a. $ 8,395
b. $ 10,446
c. $ 7,621
d. $ 8,735
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40. What factors could have caused the low 20% of farms based on net farm income to have the highest family living expenses?
a. Larger Family Size
b. High cost of Health Insurance
c. Many Home Improvements
d. All of the Above
MARKETING
Use the Market information in the Resource Information Section. Assume a negative $0.95 per bushel nearby basis and a negative $0.65 new crop basis for Corn, a $50/full turn commission for futures, and a $0.05 per bushel per month carrying charge. Carrying charge would start on November 1st. Commission on feeder cattle is $50/full turn per contract for options and futures and an even basis for the feeder cattle. The commission for selling the calves at the local auction is $14.00/head. On May 1st, 2016, the Zimmerman’s had 15,000 bushels of corn on hand. Their projected production for 2016 will give them an additional 63,500 bushels of Corn and 11,600 bushels of Soybeans to sell. Aaron will raise 50 calves that will be weaned on November 1 and will average 600 lbs, and he will background his calves, taking them to 800 lbs before they are sold at the local auction.
41. If Aaron contracts his Spring Wheat in Fessenden, what price can he lock in for his 2016 crop?
a. $4.57
b. $4.62
c. $4.75
d. $4.80
42. Aaron could have sold his soybeans in December at $8.25, how much could he have increased his profit if he sells them in June at CCG-Carrington taking into account the carrying charge?
a. $+0.75
b. $+0.90
c. $+1.00
d. $+1.05
43. The Zimmerman’s can lock in what price for their feeder cattle as a futures net price if they want to sell them in March 2017?
a. $130.50
b. $130.60
c. $130.70
d. $130.90
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44. Aaron is optimistic about the price of corn but would like to get rid of his 2015 corn inventory to pay some bills, if he were to buy calls to re-own his corn, how many would he need to purchase?
a. 3
b. 7
c. 9
d. 11
45. Aaron’s broker has been trying to talk him into a speculative trade of Crude Oil. Since he had heard that the local Ag Teacher, Mrs. Hansen, is going to buy her husband a new pickup this summer, he thinks it is a sure bet that the price of oil will go up. If Aaron buys 2 Sept. 2016 contracts today and sells them back for 72.50 in August how much will he make? (a crude oil contract is 1000 barrels and price is expressed in dollars/barrel)
a. $49,440
b. $49,540
c. $49,640
d. $49,740
46. When looking at all of the available corn contracts, what should Aaron expect to happen to the price of corn locally from spring 2016 to fall of 2018?
a. Go Down
b. Go Up
c. Stay the Same
47. If the corn basis goes from a negative 95 cents in June to
a negative 55 cents in July what is more than likely happening?
a. Too much corn is being hauled to the elevator
b. The elevator has ran out of storage
c. The elevator has a need to take in more corn
d. None of the above
INCOME TAX
Based on the Zimmerman’s Federal Tax Schedule found in the resource packet:
48. How much did the Zimmerman’s claim for depreciation in 2015?
a. $79,211
b. $21,189
c. $60,653
d. Cannot tell from the schedule F
49. Why does the Zimmerman’s Schedule F appear different than their
Farm Income Statement on Page 1 of the Resource Packet?
a. They are trying to hide income on their taxes
b. Depreciation can be accelerated for tax purposes
c. They are showing an increase in family living expenses
d. There is no difference between the two
50. How much will the Zimmerman’s owe in Federal Taxes for 2016?
a. $802,104
b. $21,189
c. They Will Get a Refund
d. You can’t tell by looking only at Schedule F
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