2010 FBM Senior Problem Solving Test - Farmer Joe-Bob owns and

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2010 FBM Senior Problem Solving Test - Farmer Joe-Bob owns and Powered By Docstoc
					                                                                                                        March 18, 2010
Name: ____________________________ Participant # _______

                                                                                               ARE 495U Assignment
                                                                                               2- 10 points


                                                                                               Create 5 or more
                                                                                               marketing plan questions
                                                                                               that need to be answered
                                                                                               related to FF.



                                                                                                         2010
                                                                                            North Carolina FFA
                                                                                  Farm Business Management
                                                                                    Career Development Event

                  Section II: Problem Solving (200 points)
Read each problem carefully. The main concept of each problem is stated at the start of each problem. Read the entire
problem before beginning work on that problem.

Section II contains nine (9) problems. Check to see that you have 13 pages including the cover page. Some pages may
contain more than one problem. The point value for each of your answers is stated in parenthesis to the right of each
blank. You have 100 minutes to complete this section of the Career Development Event.

                                                                                                              prepared by
                                                                                                        Dr. Phil Hamilton,
                                                                                                   Professor and Director
                                                                                    The Lois G. Britt Agribusiness Center
                                                                                                      Mount Olive College
                                                                     634 Henderson St., Mount Olive, North Carolina 28365
                                                                                                            919.658.2502

                                                                                                       in cooperation with
                                                                       Department of Agricultural and Extension Education
                                                                                  College of Agriculture and Life Sciences
                                                                                           North Carolina State University

                                                                                                           sponsored by

                            Southern States Cooperative, Inc.




                North Carolina FFA Farm Business Management CDE – 2010                      page 1 of 16
Problem 1 – Enterprise Budgets (20 points)
Use the enterprise budget found on page 2 to answer questions found on page 3.

   Catfish Enterprise Budget for 4 - 8-Acre Ponds.
Fingerlings/Acre              5,000                Interest Rate                       9
Lbs. feed /lb. Weight gain     1.95                Lbs./1000 begin. weight            91
Final weight lb.                   2               Day growing season                240
% Mortality/unharv. fish          10               Growing cycles/year                 1
Total Acreage                     32               % Death Loss                        1
Labor Hours/Day                  2.5               Hourly Rate                      7.00
Aerator HP                        10               Hrs. Aerators in Use/Day        10.00
                                                   Days Aerators in Use           180.00
1. Gross Receipts
                                                                                   Total
Item                          Each       Unit      Quantity      Unit Price        Value   Per Acre
Catfish                                   lb.       277,992            0.74      205,714      6,429
2. Variable Cost
Item                          Each       Unit      Quantity       Unit Cost   Total Cost   Per Acre
Fingerlings                              Acre         5,000            0.10      16,000      500.00
Feed (32%)                                Ton         271.0          250.00      67,761    2,117.52
Chemicals                                Acre            32           70.00        2,240      70.00
Tractor (Fuel &Oil)                      Hour           270            4.50        1,215      37.97
Machinery(R&M)                         cycles/yr          1        3,480.00        3,480     108.75
Utilities                                kwh        122,400            0.08        9,180     286.88
Labor                                    Hour           600            7.00      10,500      328.13
Interest on Operate Cap.                 cycle      110,376            0.06        6,656     207.99
Total Operating Cost                                                            117,031    3,657.22

Harvest Expenses
Harvest                                   lb.       277,992            0.03        8,340     260.62
Hauling                                   lb.       277,992            0.08       22,239     694.98
Total Harvest Cost                                                                30,579     955.60

Total Variable Cost                                                              147610    4612.82

Fixed Cost
Tractor + Machinery*            1                         1           7,971        7,971     249.08
Building & Equipment*           1                         1           5,818        5,818     181.80
Total Fixed Cost                                                                  13,788     430.89

Total All Expenses                                                               161,399   5,043.71

Breakeven Cost Variable Expenses -- $/lb.                                           0.53
Breakeven Cost All Expenses --       $/lb.                                          0.58
Net Income Above Variable Expenses                                                58,104   1,815.74
Net Income Above all Specified Costs                                              44,315   1,384.85

Net Returns at high, average and low prices last 3 years
Lowest price = $0.59                                                               2,617           82
Avg. Price last 3 years = $0.74                                                   44,315        1,385
Highest price = $0.79                                                             58,215        1,819



              North Carolina FFA Farm Business Management CDE – 2010             page 2 of 16
Review the catfish enterprise budget on page 2. Answer the following questions related to the
Mr. Davis’ catfish farm business projections. (2 points each)

   1. What is the hired labor rate per hour?
                                                           $               per hour

   2. What is the expected yield per acre?
                                                                   _______pounds

   3. What is the interest rate for annual operating capital?

                                                                           %

   4. What is the total fixed cost per acre?
                                                           $       _______ per acre

   5. If the yield of production remains at 6,429 pounds per acre and all costs remain unchanged,
      what is the break-even price per pound to cover total operating costs?

                                                           $    __________ per pound

   6. What is the total labor cost per acre?
                                                           $_______         per acre

   7. What are the anticipated returns above all specified costs per acre?

                                                           $       _____   per acre


   8. What is the total harvest cost for the four 8-acre ponds?

                                                        $____________


   9. What is the total harvest cost per acre for the four 8-acre ponds?

                                                       $       __________ per acre


   10. How many hours of hired labor will be required per acre?

                                                           ____________ hours per acre




         North Carolina FFA Farm Business Management CDE – 2010                page 3 of 16
Problem 2 – Enterprise Budgets (18 points)
Use the NC State University Extension enterprise budget found below on page 4 to answer questions found on
page 5.




                                                                        $0.30




              North Carolina FFA Farm Business Management CDE – 2010             page 4 of 16
Review the cotton enterprise budget on page 4.

Mr. Davis developed this enterprise budget at the beginning of the year to be used with their farm
business projected cash flow. As production time approaches, Mr. Davis wants to make the following
changes in the enterprise budget for cotton to better reflect current conditions. Using the changes that
Mr. Davis provides, make the changes on the enterprise budget and answer the following questions.
Assume no other inputs or outputs change. Round all answers to two decimals. (1 point each)

** Assume no other input or output change.


       Changes:
            Cotton lint price                                       $0.75 per pound
            Cotton seed price                                       $0.09 per pound
            Nitrogen                                                $0.50 per pound
            Ginning cost                                            $0.12 per pound
            Hired Labor                                             $9.00 per hour
            Estimated Net Weight of Cotton Lint Produced            850.0 pounds



       1. What are the total operating costs per acre? (2 points)
                                                            $       ___________

       2. What are the total ownership (pro-rated fixed) costs per acre? (2 points)

                                                             $      ___________

       3. What are the total receipts per acre? (2 points)

                                                             $      ___________

       4. What are the returns above total costs? (2 points)

                                                             $      ___________

       5. Name three (3) factors that will affect the change in the break-even price? (3 points)

              _____________________________________________________

              _____________________________________________________

              _____________________________________________________




             North Carolina FFA Farm Business Management CDE – 2010            page 5 of 16
Problem 3 – Projected Cash Flow (20 points)
The Davis farm business consulted their farm business advisor in preparing a projected cash flow for
2010.

A. The following list of 10 items is related to the Davis farm business. They are not sure if they should
   be included in the projected cash flow. Indicate with a (+) for those items that should be included in
   the projected cash flow and a (0) for those items that should not be listed on their projected cash
   flow. (1 point each)

1. Value of the exchange of fuel for labor                           ______
2. Equity in 2009 grain listed on ending inventory                   ______
3. Life Insurance                                                    ______
4. Feed purchased for next year                                      ______
5. Cost of internet site development for value-added farm sales      ______
6. Payment of real estate tax on home                                ______
7. Cost of livestock purchased for resale                            ______
8. Paid family labor                                                 ______
9. End of the year accrued interest due on a machinery loan          ______
10. Interest paid on machinery loan                                  ______

B. In constructing the projected cash flow, identify where selected items should be found. Select the
   best answer from cash flow categories A thru O and write that letter in the correct blank beside the
   items listed 1 thru 10 below. Categories may be used more than once. (1 point each)

               ______         1. Sales from peach orchard products
               ______         2. Tax preparation for farm business
               ______         3. Principal payment on operating loan
               ______         4. Difference between cash outflows and inflows
               ______         5. Tuition paid for artificial insemination training
               ______         6. Interest paid on personal automobile loan
               ______         7. Payment of real estate tax on farmland
               ______         8. Depreciation of machine storage building
               ______         9. Cash received from a loan from neighbor
               ______         10. Spouse’s salary from supermarket


               Cash Flow Categories

       A. Operating Receipts         I. Accrued Interest
       B. Capital Sale               J. Interest Payments
       C. Operating Expenses         K. Total Cash Outflow
       D. Overhead Expenses          L. Sources of Cash
       E. Non-farm Income            M. Net Cash Flow
       F. Family Living              N. Principal Payments
       G. Cash Position              O. Not on a Projected Cash Flow
       H. Cash Difference


             North Carolina FFA Farm Business Management CDE – 2010              page 6 of 16
        Problem 4 - Investment Analysis & Time Value of Money (24 points)

Use the table below or financial formulae to answer the time value of money and investment analysis
questions below.


     FINANCIAL COEFFICIENTS FOR THE TIME VALUE OF MONEY


                                                   Interest Rate = 6%
                                            Present      Future
                                            Value of    Value of
           Present         Future           Ordinary    Ordinary Amortization
 Year     Value of 1      Value of 1        Annuity     Annuity      Factors
   1         0.9434          1.0600           0.9434       1.0000       1.0600
   2         0.8900          1.1236           1.8334       2.0600       0.5454
   3         0.8396          1.1910           2.6730       3.1836       0.3741
   4         0.7921          1.2625           3.4651       4.3746       0.2886
   5         0.7473          1.3382           4.2124       5.6371       0.2374
   6         0.7050          1.4185           4.9173       6.9753       0.2034
   7         0.6651          1.5036           5.5824       8.3938       0.1791
   8         0.6274          1.5938           6.2098       9.8975       0.1610
   9         0.5919          1.6895           6.8017      11.4913       0.1470
  10         0.5584          1.7908           7.3601      13.1808       0.1359
  11         0.5268          1.8983           7.8869      14.9716       0.1268
  12         0.4970          2.0122           8.3838      16.8699       0.1193
  13         0.4688          2.1329           8.8527      18.8821       0.1130
  14         0.4423          2.2609           9.2950      21.0151       0.1076
  15         0.4173          2.3966           9.7122      23.2760       0.1030
  16         0.3936          2.5404          10.1059      25.6725       0.0990
  17         0.3714          2.6928          10.4773      28.2129       0.0954
  18         0.3503          2.8543          10.8276      30.9057       0.0924
  19         0.3305          3.0256          11.1581      33.7600       0.0896
  20         0.3118          3.2071          11.4699      36.7856       0.0872
  21         0.2942          3.3996          11.7641      39.9927       0.0850
  22         0.2775          3.6035          12.0416      43.3923       0.0830
  23         0.2618          3.8197          12.3034      46.9958       0.0813
  24         0.2470          4.0489          12.5504      50.8156       0.0797
  25         0.2330          4.2919          12.7834      54.8645       0.0782


             North Carolina FFA Farm Business Management CDE – 2010        page 7 of 16
             PV = FV / (1 + r)n

     PV= Present Value                            ROUND-OFF decimals to the
     FV= Future Value                             nearest cent ($1,594.38775
     r= interest or discount rate                 rounds off to $1,594.39)
     n= number of years


You have been approached about a 10-year investment that will return $35,000 at the end of 10 years and
the investment has been offered to you for $50,000. You are trying to decide whether to make the
investment and how much this investment is worth? Your annual cost of capital or interest rate is
6%. Ignore income taxes.

If you do NOT consider the amount of the investment, how much is the $35,000 worth today?
$_________________ (8 points)




             NPV =

     NPV = Net Present Value                      ROUND-OFF decimals to the
     CF = Net Cash Flow                           nearest cent ($1,594.38775
     ICO = Initial Cash Outlay                    rounds off to $1,594.39)
     r = interest or discount rate
     t = number of years
     T = end year of investment


You have been approached about a 10-year investment that will return a net cash flow of $5,000 per year
for 10 years and the investment has been offered to you for $50,000. You are trying to decide whether to
make the investment and how much this investment is worth? Your annual cost of capital or interest rate is
6%. Ignore income taxes.


The Net Present Value (NPV) of the $50,000 investment is $ ____________ ( 8 points) $



CHECK THE CORRECT ANSWER:

Based on the information above and your calculations, you should:

_________ make the $100,000 investment.
                                                    (8 points)
_________ reject the investment.




               North Carolina FFA Farm Business Management CDE – 2010          page 8 of 16
Problem 5 - Partial Budgeting (25 points)
The Starling farm business is in east-central North Carolina. They have been growing wheat that is
custom harvested as part of their normal farming activities. However they are considering renting a
combine for harvesting 500 acres of wheat versus the custom hire for that same 500 acres. After visiting
with farm business advisors, Mr. Starling decides that partial budgeting is the best technique for
analyzing the change. Based on their enterprise budgets for custom harvesting versus renting a combine
for 500 acres of harvesting, consider the following data.


  Custom combining rate for dryland wheat                          $12.00 per acre

  Custom lease rate                                                $42.00 per hour

  Combine accomplishment rate                                      7 acres per hour

  Fuel cost (diesel)                                               $0.95 per gallon @ 10 gallons/hour
  Labor rate                                                       $5.00 per hour
  Total operating costs per acre for own combining                 $ 4,180
  Total custom combining costs per for 500 acres                   $ 6,000


Proposed Change:
Situation: Rent a combine for harvesting 500 acres of wheat per year versus custom hire.
a. Complete the partial budget form.
Note: Write “none” or “zero” in any category with no entry. Round answers to two decimal places.

Additional costs:                                            Additional returns:

Operating costs                    $_____________            Extra yield                                ???
                                                             Timeliness factor                          ???

Subtotal                          $______________            Subtotal                                 $ ???
(2 points)

Reduced returns:                                             Reduced costs:

                                     $_____________          Custom combining
                                                             500 acres @ $12/acre                  $_________

Subtotal                          $ _____________
(2 points)                                                   Subtotal                          $   _________
                                                             (2 points)
Total AC + RR                     $ ________________         Total AR + RC                  $ _______________
(2 points)                                                   (2 points)

                                   Net Change $ ___________________(5 points)


b. Should the change be implemented? Circle the correct response. (10 points)

                    Yes                    No
                North Carolina FFA Farm Business Management CDE – 2010                page 9 of 16
Problem 6 - Cost and Return Analysis (24 points)
                                              Helpful Information
 The principle of diminishing returns states that as an input is added in production, the output will
 increase at an increasing rate (stage 1), then at a decreasing rate (stage 2), and finally decline (stage
 3). A farm business manager must determine the amount of input that will maximize production and
 not decrease returns.

 Total Product = the output (production) that can be achieved with the various levels of inputs

 Average product = total product divided by the amount of input

 Marginal Product = the change in total product for a change in input

 Value of Marginal Product = marginal product x price of the product

Mr. Starling is deciding the amount of fertilizer that should be applied to the corn to provide the
maximum yield and profit. The expected yield when various amounts of fertilizer are applied has been
estimated from past experience with growing corn. Nitrogen fertilizer costs $150 per unit. Corn is
projected to sell at $3.50 per bushel. Use this information to complete the ten (10) BLANKS in the table
and answer questions 1-3 below.

(1 point for each BLANK correctly calculated and filled in on the table)

                Expected
                  yield:                    Marginal
  Units of      bushels of                 Input Cost                                           Value of
  fertilizer     corn per    Marginal       (nitrogen     Total Value   Average     Marginal    Marginal
  per acre         acre       Input         fertilizer)    Product      Product     Product     Product
      1            30             1           $100           $105         30             --
      2            64             1           $100           $224         32             34
      3            120            1           $100           $420         40             56
      4            170            1           $100           $595         43             50
      5            180            1           $100           $630         36             10
      6            204            1           $100           $714         34             24
      7            192            1           $100           $672         27             -12
      8            150            1           $100           $525         19             -42

1. For Mr. Starling, at what level of nitrogen fertilizer use is profit maximized?
                                      _   units of nitrogen per acre (8 points)

2. With all the talk about fossil fuels becoming more expensive, the nitrogen fertilizer cost increases to
$125 per unit. Now, at what level of nitrogen fertilizer use is profit maximized?
                              _       units of nitrogen fertilizer per acre (8 points)



               North Carolina FFA Farm Business Management CDE – 2010                page 10 of 16
Problem 7 - Cash Costs and Economic Costs (24 points)
Tar Heel Farm Business has purchased a 2010 Ford F250 Diesel Crew Cab pick-up truck for $35,000
cash. The managers are using the following information to determine the cost of owning and operating
the pick-up truck. They have been encouraged to consider opportunity costs and depreciation in
determining their projected costs per mile to own and operate the truck.

                            2010 Ford F250 Diesel Crew Cab pick-up truck
                                                                         Table A: 30,000        Table B: 25,000
Purchase price                                                           $       35,000.00      $     35,000.00
Useful life (UL) in years                                                                   7                     7
Salvage Value (SV) at the end of useful life                             $       10,000.00      $     10,000.00
Estimated mileage to be driven each year                                           30,000                25,000
Annual repairs at 4% of purchase price (repairs coefficient)                           4%                    4%
Insurance cost per year                                                  $        1,050.00      $      1,050.00
Opportunity cost of money (interest)                                                   5%                    5%
Property tax per year                                                    $         400.00       $        400.00
Fuel Economy: miles per gallon                                                             15                15
Fuel Cost per gallon                                                     $            3.00      $          3.00
Shed/ Garage/ Shelter for the pick-up truck per year                     $         250.00       $        250.00


 SOME USEFUL INFORMATION in completing table B on the next page

 Cash Costs are those costs that are paid with cash, check or other liquid forms of currency.
 Economic Costs are cash costs as well as those that are not cash, such as, depreciation, opportunity
 interest. Economic costs are all costs relative to a production asset or activity that a manager should
 consider when planning and control business activities.



Table A: 30,000 miles driven per year                                        Cash Costs         Economic Costs
Fixed Costs per Year
Depreciation = (Purchase Price - Salvage value) divided by Useful Life   $             -        $      3,571.43
(Interest = ((Purchase Price + Salvage Value) / 2) X Interest)           $             -        $      1,125.00
Tax =                                                                    $         400.00       $        400.00
Insurance =                                                              $        1,050.00      $      1,050.00
Shelter for Pickup =                                                     $         250.00       $        250.00
Total Fixed Costs                                                        $        1,700.00      $      6,396.43
Variable Costs / year (30,000 miles driven/year)
Fuel = Miles / MPG X Cost of Gasoline                                    $        6,000.00      $      6,000.00
Repair = Purchase Price X Repair Coefficient                             $        1,400.00      $      1,400.00
Opportunity Cost of Interest = Annual Variable Cost X Interest           $             -        $        370.00
Total Variable Cost                                                      $        7,400.00      $      7,770.00
Total Cost per year                                                      $        9,100.00      $     14,166.43
Total Cost per mile @ 30,000 miles driven                                $          0.3033      $        0.4722

Complete Table B calculating the correct value for each blank space (1 point each)
           North Carolina FFA Farm Business Management CDE – 2010            page 11 of 16
Table B: 25,000 miles driven per year                                         Cash Costs   Economic Costs
Fixed Costs per Year
Depreciation = (Purchase Price - Salvage value) divided by Useful Life   $                  $
(Interest = ((Purchase Price + Salvage Value) / 2) X Interest)           $                  $
Tax =                                                                    $                  $
Insurance =                                                              $                  $
Shelter for Pickup =                                                     $                  $
Total Fixed Costs                                                        $                  $
Variable Costs / year (25,000 miles driven/year)
Fuel = Miles / MPG X Cost of Gasoline                                    $                  $
Repair = Purchase Price X Repair Coefficient                             $                  $
Opportunity Cost of Interest = Annual Variable Cost X Interest           $                  $
Total Variable Cost                                                      $                  $
Total Cost per year                                                      $                  $
Total Cost per mile                                                      $                  $

Note: Write “none” or “zero” in any category with no entry.


Problem 8 – Cost Analysis for Planning (20 points)
Properly identifying RELEVANT variable and fixed costs is important in planning and developing
enterprise budgets. For the following costs, identify whether each item is a variable cost or a fixed cost.
Write a “V” in the blank if the item is a variable cost. Write an “F” in the blank if the item is a
fixed cost. Write an “N” in the blank if the item is NOT a farm business cost. (2 points for each
blank)

                                  Real estate taxes

                                  Crop insurance

                                  Depreciation on machinery

                                  Feed purchases for pleasure horse

                                  Fertilizer purchases

                                  Insurance for machinery and equipment

                                  Depreciation on house that owner lives in

                                  Interest on annual operating capital

                                  Custom harvesting expenses

                                  Machinery labor for custom harvest crew




              North Carolina FFA Farm Business Management CDE – 2010               page 12 of 16
Problem 9 - The Balance Sheet & Income Statement & Analysis (25 points)
              SOME USEFUL INFORMATION for answering the question below.

 Current assets are those that will either be used up or sold in the next year as a normal part of the
 farm business activities, and their sale will not disrupt future production activities.
 Non-Current assets are less liquid. They have a useful life greater than one year. Their sale
 affects the future income potential of the business.
 Current liabilities are those financial obligations which will become due and payable within one
 year from the date of the balance sheet.

 Non-Current liabilities represent loans where repayment is extended over a period greater than
 one year. Many times these
BALANCE SHEETS are loans for the purchase of real estate, land, machinery, or buildings.
                                           12/31/2009      12/31/2008     12/31/2007 12/31/2006
ASSETS

Current Farm Assets
 Cash                                           1,500          1,500           1,500         1,500
 Accounts Receivable                           13,555         14,553          15,340         5,993
 Crop Inventory                               141,228        106,063         113,739        25,500
 Market Livestock                             108,725        105,336         101,915        88,800
 Prepaid Expenses                               2,283          1,319           2,300           -
  Total Current Assets                        267,291        228,771         234,794       121,793

Non-Current Farm Assets
 Machinery & Equipment                        243,390        192,384         151,084        43,100
 Farm Vehicles                                 34,840         41,000          48,000        46,000
 Raised Breeding Livestock                     42,400         30,950          38,650        35,550
 Coop Stock                                   148,500        148,500         196,000        56,000
  Total Non-Current Assets                    469,130        412,834         433,734       180,650
Total Farm Assets                             736,421        641,605         668,528       302,443

LIABIITIES

Current Farm Liabilities
 Accounts Payable                              23,667          5,865           7,788           -
 Operating Loan                               144,271         60,043         220,075        58,674
 CCC Loans                                        -           43,382          31,661           -
 Current Portion Term Debt                     40,297         36,692          47,941        16,122
 Accrued Interest                               5,242          6,558           7,260         2,595
  Total Current Farm Liabilities              213,477        152,540         314,725        77,391

Non-Current Farm Liabilities
 Machinery & Equipment Notes                  143,945        129,518         114,310        42,993
  Total Non-Current Farm Liabilities          143,945        129,518         114,310        42,993
Total Farm Liabilities                        357,422        282,058         429,035       120,384

Farm Net Worth (Equity)                       378,999        359,547         239,493       182,059



           North Carolina FFA Farm Business Management CDE – 2010             page 13 of 16
INCOME STATEMENTS
                                                  2009             2008         2007
INCOME
  Cash Income
     Crop Sales                               $ 520,444      $   210,173    $ 141,191
     Non-breeding raised livestock            $    51,484    $    84,132    $ 53,314
     Lvst. Purch. For Resale - Beef           $ 238,163      $   150,338    $ 63,431
     Lvst. Purch. For Resale - Dairy Beef     $ 241,191      $   155,612    $ 18,852
     Ag Program Payments                      $    17,368    $    12,022    $ 12,088
     Crop Insurance Proceeds                  $       -      $       -      $ 46,631
     Custom Hire                              $    18,000    $    27,420    $   1,570
     Other                                    $     1,698    $       699    $ 12,000
 Total Cash Income                            $ 1,088,348    $   640,396    $ 349,077
 Adjustments
     Inventory Change - Crops                 $    38,165    $ (10,676)     $ 88,239
     Inventory Change - Livestock             $     4,389    $   3,421      $ 43,115
     Change in Accounts Receivable            $    (1,023)   $    (807)     $   5,993
 Total Adjustments                            $    41,531    $  (8,062)     $ 137,347
 Total Income                                 $ 1,129,879    $ 632,334      $ 486,424

EXPENSES
     Livestock Purchased for Resale           $   157,600    $ 110,500      $   57,404
 Operating Expenses
     Seeds & Plants                           $    39,712    $ 19,962       $ 25,154
     Fertilizers & Lime                       $    96,317    $ 45,013       $ 36,249
     Chemicals                                $    21,663    $ 11,997       $ 11,273
     Feed Supplement                          $    14,238    $ 13,697       $ 10,738
     Feed Grain & Roughage                    $    33,561    $ 32,666       $ 22,059
     Veterinary / Breeding / Medicine         $     4,532    $   4,132      $   3,050
     Custom Hire                              $     6,800    $   4,500      $     -
     Labor Hired                              $     4,300    $   1,600      $     864
     Car & Truck                              $     7,932    $   6,123      $   5,947
     Gasoline / Fuel / Oil                    $    44,112    $ 18,288       $ 13,479
     Repairs & Maintenance                    $    34,986    $ 22,194       $ 21,524
     Rent and Leases                          $   146,465    $ 65,528       $ 72,417
     Insurance - Farm and Crop                $    20,616    $ 10,200       $   7,487
     Supplies                                 $     6,549    $   4,369      $   5,061
     Utilities                                $     2,543    $   2,167      $     982
     Miscellaneous                            $     1,856    $   1,033      $   1,027
 Total Operating Expenses                     $   486,182    $ 263,469      $ 237,311
     Operating Interest                       $    34,854    $   3,338      $   4,455
     Term Interest                            $    25,149    $ 19,671       $ 11,455
 Total Interest Expense                       $    60,003    $ 23,009       $ 15,910
 Total Cash Expenses                          $   703,785    $ 396,978      $ 310,625
 Adjustments
     Change - Accounts Payable                $    17,802    $  (1,923)     $   7,788
     Change - Prepaid Expenses                $      (944)   $    (981)     $   2,300
     Change - Interest Payable                $    (1,316)   $    (702)     $   4,665
     Depreciation                             $    55,646    $ 46,677       $ 39,417
 Total Adjustments                            $    71,188    $ 43,071       $ 54,170
 Total Expenses                               $   774,973    $ 440,049      $ 364,795

Net Cash Income                               $   384,563    $ 243,418      $ 38,452
Net Farm Income from Operations               $   354,906    $ 192,285      $ 121,629

          North Carolina FFA Farm Business Management CDE – 2010     page 14 of 16
You are a loan officer for a Farm Credit System bank and Bill Bauman, the owner and operator of
Sampson Farms requests a loan based in the balance sheet show above. Calculate the ratios and
information requested below and give your reasons for granting or denying a loan for Sampson Farms.

1. Calculate the Current Ratio.

                             Current Ratio = _____________ : 1 (6 points)

2. Calculate the Debt/Asset Ratio.

                         Debt/Asset Ratio = _____________: 1            (6 points)

3. Calculate the amount of Working Capital.

                          Working Capital = $ _________________ (6 points)

4. Check one. (7 points) Based solely on the information in this balance sheet, as a loan officer
deciding whether to deny or grant a loan for Sampson Farms, I

       _______ would grant a loan
       _______ deny a loan
       _______ cannot make the loan decision. Before I could make a decision, I need, at least, the
       following additional information:
       __________________________________________________________________________
       Credit worthiness of borrower: based on history of repayment on previous loans and
       judgments outstanding (if any).

                                              Helpful Hint

The current ratio is a measure of liquidity. It determines the ability of the farm business to meet
short-term debt and other obligations from available cash. It’s the ratio of current assets to current
liabilities.

The debt/asset ratio compares total dollars of debt to total dollars of assets. The ratio measures the
amount of risk in regard to debt against the farm business. A high ratio indicates greater risk and
lower borrowing a capacity.




                       End of Problem Solving Section of 2010 FBM CDE




             North Carolina FFA Farm Business Management CDE – 2010             page 15 of 16
Name: ____________________________ Participant # _______



            2010 STATE FFA FBM PROBLEM SOLVING SCORE SHEET

                                                               Possible Score Contestant's Score
Problem 1    Enterprise Budget - Catfish                            20

Problem 2    Enterprise Budget - Cotton                             18

Problem 3    Projected Cash Flow                                    20

Problem 4    Investment Analysis and Time Value of Money            24

Problem 5    Partial Budgeting                                      25

Problem 6    Cost and Return Analysis                               24

Problem 7    Cash Costs and Economic Costs                          24

Problem 8    Cost Analysis for Planning                             20

Problem 9    The Balance Sheet & Income Statement & Analysis        25

                                                                    200




            North Carolina FFA Farm Business Management CDE – 2010        page 16 of 16

				
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