1995 Missouri FFA
Farm Management Contest
Multiple Choice Section
The Farm Management Contest is designed to test student
understanding of the application of economic principles in farm
management. Each question is worth three (3) points.
Please place your answers in the appropriate box on the card
provided. There is only one correct answer to each question.
1. 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
2. A soybean producer decides to store his soybeans in the local
elevator for six months. The price at harvest is $5.50 per
bushel and the elevator charges 2 cents per bushel per month for
storage plus a 5 cents per bushel handling charge. He has 4,000
bushels to sell and must borrow $22,000 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. $5.83
B. $5.86
C. $5.92
D. $6.04
E. None of the above
3. A $50,000 loan amortized at 10% interest for 5 years yields
annual payments of $13,189.87. How much of the first year's
payment is principal?
A. $3,189.87
B. $8,189.87
C. $11,870.88
D. $13,189.87
E. None of the above
4. For the above loan of $50,000, if the fifth and final payment
includes $1,199.08 of interest, what was the outstanding
principal balance after the fourth payment?
A. $3,189.87
B. $8,189.87
C. $11,990.79
D. $13,189.87
E. None of the above
5. 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
6. If corn silage as fed contains 65% moisture and 2% protein,
the dry matter would be what percent protein?
A. 2.80
B. 3.08
C. 5.71
D. 8.00
E. None of the above
7. 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
8. In 1994, Pat Parker had net farm income of $28,000. Pat had
total business assets of $600,000 and total liabilities of
$350,000. Pat paid $32,000 in interest. Rate of return on
equity for 1994 would be
A. 5.8%.
B. 11.2%.
C. 12.8%.
D. 14.0%.
E. None of the above
9. The cost of producing one additional unit of output is called
A. opportunity cost.
B. substitution cost.
C. average cost.
D. marginal cost.
E. None of the above
10. A farmer purchases 500-pound feeder steers for 85 cents per pound
and plans to sell the steers at 800 pounds. The farmer
estimates the total cost of gain to be 45 cents per pound. The
nearest breakeven price when the steers are sold at 800
pounds is
A. 60.7 cents/pound.
B. 70.0 cents/pound.
C. 73.4 cents/pound.
D. 76.7 cents/pound.
E. None of the above
11. At the beginning of last year, a farmer had an outstanding
loan for $100,000. 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. $74,600
B. $84,600
C. $88,500
D. $95,400
E. None of the above
12. 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 lender devalues the
land by 10%?
A. .64
B. .88
C. 1.14
D. 1.22
E. None of the above
13. 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 10% APR. The farmer expects the baler
to last for 9 years and have a salvage value of $2,000. How
much interest will the farmer pay the first year of the loan?
A. $2,160
B. $2,340
C. $2,600
D. $4,680
E. None of the above
14. On April 1, 1994, Lynn borrowed $25,000 to buy seed and
fertilizer. On Dec. 1, 1994, she repaid the $25,000 along
with $1625.00 interest. What annual interest rate did she
pay?
A. 9.75%
B. 10.97%
C. 11.75%
D. 12.25%
E. None of the above
15. 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
16. A cattle-feeding operation has sales of $50,000, feed
purchases of $5,000, other costs of $40,000, an opening
inventory of $40,000, and a closing inventory of $42,000.
What is the net farm income?
A. $2,000
B. $7,000
C. $17,000
D. $27,000
E. None of the above
17. The effect of appreciation on land value
A. will be accounted for by a larger cash income value in
the cash flow statement.
B. will be accounted for by a smaller added expense figure
in the cash flow statement.
C. will be accounted for by a smaller cash expense value in
the cash flow statement.
D. is not shown on the cash flow statement.
E. None of the above
18. When the size of the soybean harvest exceeds locally
available farm and elevator storage, what happens to the
basis?
A. Basis narrows.
B. Basis widens.
C. Basis goes out of existence.
D. Basis is usually the same all year long.
19. How many total acres are included in "SW 1/4 of NE 1/4 and S
1/2 of NW 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
20. How much perimeter fence would be required to completely
enclose the parcel of land described in the question above?
A. 1.0 mile
B. 1.5 miles
C. 2.0 miles
D. 2.5 miles
E. None of the above
21. 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.
22. The role of price in a free market is to serve as a guide
A. in controlling quantity supplied.
B. in limiting quantity demanded.
C. in allocating consumption.
D. in deciding what, when, and how much to produce.
E. All of the above
23. A highly leveraged business
A. is less susceptible to business risk.
B. uses very little borrowed money.
C. is very susceptible to financial risk.
D. is one located at the edge of an earthquake zone.
24. The specified price at which the option purchaser may buy or
sell the commodity is the
A. strike price.
B. call price.
C. put price.
D. option price.
E. None of the above
25. Marginal revenue and marginal cost are useful concepts in
determining the profit maximizing output level. Profit will
be at its maximum level
A. where marginal revenue is at its maximum level and
marginal cost is equal to zero.
B. where marginal revenue is equal to zero and marginal
cost is at its maximum.
C. where marginal revenue equals marginal cost.
D. where marginal revenue is at its minimum and marginal
cost is at its maximum.
26. A farmer is solvent if
A. he has sufficient current assets to cover current debts.
B. he has sufficient equity to cover current debts.
C. he has sufficient assets to cover all debts.
D. he can pay all debts with all equity.
E. All of the above
27. 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.
28. 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
29. Corn has an expected yield of 120 bushels per acre and has a
production cost of $140.00 per acre. Current market prices
are $2.40 per bushel for corn and $6.00 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. 35.2 bushels
C. 38.7 bushels
D. 43.0 bushels
E. None of the above
30. Purchase of a call option on corn means the buyer
A. is required to sell a corn futures contract at a set
price.
B. may sell, but is not required to sell, a corn futures
contract at a set price.
C. may buy, but is not required to buy, a corn futures
contract at a set price.
D. is required to buy a corn futures contract at a set
price.
E. None of the above
31. 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
32. The big advantage of renting a major asset as compared to
purchasing is that renting
A. reduces your income tax.
B. increases your depreciation.
C. releases capital for other uses.
D. improves output per worker.
E. costs less in the long run.
33. Effective for tax years beginning after 1992, the maximum
amount that can be claimed as a section 179 expense deduction
on your tax return has been changed
to
A. $5,000.
B. $10,000.
C. $15,000.
D. $17,500.
E. None of the above
34. 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
35. Rate of return on investment for a farm business is
calculated by
A. dividing total assets by total liabilities.
B. subtracting total liabilities from total asset value.
C. dividing return to capital by average total assets.
D. dividing return to equity by net worth.
E. None of the above
36. 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
37. The capital gains taxes that would be due should a farmer
sell his land is an example of a
A. current liability.
B. long-term liability.
C. deductible expense.
D. contingent liability.
E. None of the above
38. A limited liability company
A. is taxed like a corporation.
B. is taxed like a partnership.
C. can have no more than 35 members.
D. is not recognized by Missouri law.
E. None of the above
39. The best example of a fixed cost in a corn production
enterprise budget would be
A. seed corn.
B. fuel and oil.
C. land ownership costs.
D. interest on operating capital.
E. machinery repairs.
40. Which of the following statements regarding accrued interest
is most nearly true?
A. Beginning accrued interest will always be less than
ending accrued interest.
B. Beginning accrued interest will always be greater than
ending accrued interest.
C. Accrued interest pertains only to short-term debt.
D. Accrued interest pertains only to intermediate and
long-term debt.
E. Accrued interest is not a cash expense until it is paid.
41. A charge for capital used in a farmer's cattle herd is
usually included in an enterprise budget regardless of the
farmer's equity position. This illustrates the principle of
A. marginal cost.
B. fixed cost.
C. opportunity cost.
D. variable cost.
E. alternative cost.
42. Net worth is a measure of
A. managerial ability.
B. financial position.
C. profitability.
D. liquidity.
E. All of the above
43. Diminishing marginal returns to a factor of production are
most likely to occur when
A. one factor is increased and all others are fixed.
B. one factor is fixed and all others are increased in
equal proportion.
C. all factors are increased in equal portion.
D. One factor is decreased and all others are fixed.
E. None of the above
44. Tom Farmer earned $27,000 from farming last year. His total
assets are valued at $380,000. He has outstanding mortgages
and loans of $125,000. What rate of return did he earn on
his equity?
A. 5.26%
B. 7.84%
C. 10.6%
D. 16.0%
E. None of the above
45. During the last 12 months, Mr. Jackson had cash farm receipts
of $25,000. He had cash outlays of $14,000. Which of the
following statements is correct?
A. Mr. Jackson had a net farm income of $11,000.
B. Mr. Jackson's net worth increased by $11,000.
C. Mr. Jackson had a positive cash flow of $11,000.
D. Mr. Jackson had a depreciation charge of $11,000.
E. None of the above
46. Sue has assets of $120,000, total liabilities of $70,000, and
current notes due of $10,000. What is the net capital ratio?
A. 2.00:1
B. 1.71:1
C. 1.08:1
D. .58:1
E. None of the above
47. According to the "Farmers Tax Guide," the basis value of a
new depreciable asset where a like trade is involved is
A. its market price plus the undepreciated balance of the
item traded.
B. the cash paid.
C. the undepreciated balance of the item traded plus the
cash paid.
D. the market price minus the cash paid.
E. None of the above
48. Up to harvest time a farmer has spent $27 per acre for
fertilizer, fuel, seed, and hired labor on his barley.
Because of hail damage, he now expects a yield of 8 bushels
per acre. The farmer had not taken out hail insurance. If
the expected price of barley is $2.50 per bushel, what is his
best alternative?
A. Assume the $27 per acre loss for the barley and plow up
the barley.
B. Harvest the barley assuming a $14 per acre harvesting
cost.
C. Sell the standing barley as pasture for $4 per acre.
D. Sell the standing barley as hay for $5 per acre.
E. None of the above
49. A livestock producer, wishing to use futures markets to hedge
the price of cattle, would at the time of his cattle purchase
A. buy futures contracts expecting to sell the contracts
when selling cattle.
B. sell futures contracts expecting to sell more contracts
when selling cattle.
C. sell futures contracts expecting to buy contracts when
selling cattle.
D. buy futures contracts expecting to buy more contracts
when selling cattle.
E. All of the above
50. Renting land on shares of production rather than for cash
results in
A. less risk for both the landlord and the tenant.
B. more risk for both the landlord and the tenant.
C. less risk for the landlord, more risk for the tenant.
D. more risk for the landlord, less risk for the tenant.
E. no change in risk.
1995 MISSOURI FFA FARM MANAGEMENT CONTEST
Problems Section
For the following problems, place your answer for each question
in the corresponding numbered space on the answer sheet.
Computations may be done in the margins or on the back of the
paper. Each question is worth four (4) points. There is only
one correct answer for each question.
PROBLEM I - Balance Sheet
Using the information below, complete the net worth statement for
January 1, 1995:
Land . . . . . . . . . . . . . . . . . . . . . . . . $300,000
Autos . . . . . . . . . . . . . . . . . . . . . . . 15,000
Machinery and equipment. . . . . . . . . . . . . . . 95,000
Cows . . . . . . . . . . . . . . . . . . . . . . . . 71,000
Calves . . . . . . . . . . . . . . . . . . . . . . . 29,000
Sows and boars . . . . . . . . . . . . . . . . . . . 25,000
Market hogs . . . . . . . . . . . . . . . . . . . . 92,000
Checking and savings . . . . . . . . . . . . . . . . 6,947
House. . . . . . . . . . . . . . . . . . . . . . . . 69,000
Fences . . . . . . . . . . . . . . . . . . . . . . . 22,000
Hog buildings . . . . . . . . . . . . . . . . . . . 50,000
Feed and hay . . . . . . . . . . . . . . . . . . . . 5,100
Accrued interest owed. . . . . . . . . . . . . . . . 3,750
Accrued taxes owed . . . . . . . . . . . . . . . . . 7,400
25-year land loan balance is $220,000.
$13,000 plus interest is due October 1 of each year.
5-year equipment loan balance is $61,000.
$18,000 plus interest is due August 31 of each year.
Current Assets: Short-term Liabilities:
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
Total _________________ Total __________________
Intermediate Assets: Intermediate Liabilities:
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
Total _________________ Total __________________
Fixed Assets: Long-term Liabilities:
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
______________________________ _______________________________
Total _________________ Total __________________
Total Assets________________ Total Liabilities____________
Net Worth _________________
Questions 1 through 7 refer to PROBLEM I
1. The total value of current assets on January 1, 1995, was:
A. $92,000
B. $98,947
C. $127,947
D. $133,047
E. None of the above
2. The total value of intermediate assets was:
A. $181,000
B. $206,000
C. $256,000
D. $266,000
E. None of the above
3. The total value of fixed (or long-term) assets was:
A. $103,000
B. $172,000
C. $194,000
D. $289,000
E. None of the above
4. The total value of short-term liabilities was:
A. $11,150
B. $24,150
C. $42,150
D. $103,150
E. None of the above
5. The total value of intermediate liabilities was:
A. 0
B. $18,000
C. $43,000
D. $61,000
E. None of the above
6. The total value of long-term liabilities was:
A. $191,000
B. $207,000
C. $220,000
D. $300,000
E. None of the above
7. The current ratio is:
A. 0.612
B. 1.944
C. 2.871
D. 3.156
E. None of the above
PROBLEM II -- Enterprise Budget
Use the following feeder pig budget to answer Questions 8 through
16.
_________________________________________________________________
LOW INVESTMENT FEEDER PIG PRODUCTION
Per Sow Farrowing - Based on 40 Sow Pasture System
All Rations Purchased
Operating Inputs: Units Price Quantity Value
Farrowing ration Cwt. 8.900 10.080 89.71
Starter ration Cwt. 12.300 20.440 251.41
Starter ration Cwt. 12.300 11.190 137.64
Small grain straw Bl. 1.250 3.000 3.75
Young boar Hd. 400.000 0.070 28.00
Young sows Hd. 160.000 0.900 144.03
Utilities Hd. 15.000 1.000 15.00
Trucking Hd. 1.750 15.890 27.81
Vet. medicine Hd. 2.000 15.890 31.78
Machine hire Hr. 87.000 0.050 4.35
Annual operating capital Dol. 0.085 102.096 8.68
Machinery labor Hr. 5.50 7.260 39.93
Equipment labor Hr. 5.50 2.119 11.65
Livestock labor Hr. 6.00 13.540 81.24
Mach. fuel, lube, repairs Dol. 39.62
Equip. fuel, lube, repairs Dol. 7.80
Total Operating Costs 922.40
Fixed Costs: Amount Value
Machinery
Interest at 8.750% 86.27 7.55
Depr., taxes, insurance 15.55
Equipment
Interest at 8.750% 180.44 15.79
Depr., taxes, insurance 37.94
Livestock
Sow 66.50
Boar 4.63
Interest at 8.750% 71.13 6.22
Total Fixed Costs 83.05
Production: Units Price Quantity Value
For pigs (35-55) Cwt. 75.00 7.46 559.50
Non-breeder gilts Cwt. 38.00 0.72 27.17
Sows Cwt. 34.00 2.72 92.48
Boar Cwt. 27.00 0.30 8.03
Total Receipts 687.18
Returns above total operating cost - 235.22
Returns above all specified costs - 318.27
Two farrowing groups, two litters/sow/year
_________________________________________________________________
8. Total operating cost per sow is:
A. $8.68
B. $83.05
C. $687.18
D. $922.40
E. None of the above
9. The return above total operating cost per sow is:
A. -$318.27
B. -$235.22
C. $83.05
D. $559.50
E. None of the above
10. How many hours of labor are budgeted per sow?
A. 7.26
B. 13.54
C. 22.919
D. 81.240
E. None of the above
11. What price per bale is paid for straw?
A. $1.25
B. $3.00
C. $3.75
D. $4.25
E. None of the above
12. What is the total budgeted interest cost per sow?
A. $7.55
B. $23.34
C. $29.56
D. $38.24
E. None of the above
13. If feeder pigs are marketed at 45 pounds, how many pigs are
sold per sow?
A. 13.8
B. 16.58
C. 19.22
D. 22.17
E. None of the above
14. What price per head is paid for replacement boars?
A. $144.03
B. $160.00
C. $400.00
D. Not enough information given
E. None of the above
15. With $5 per hour labor, what would be the expected per sow
return over all budgeted costs?
A. -$288.63
B. -$295.71
C. -$300.04
D. -$336.50
E. None of the above
16. If feeder pigs sell for 85 cents per pound, what will be the per
sow income?
A. $634.10
B. $687.18
C. $743.77
D. $761.78
E. None of the above
PROBLEM III -- Income Tax Management
Use the following tax tables to calculate depreciation for
questions 17 through 22.
ANNUAL DEPRECIATION PERCENTAGES FOR 5-YR PROPERTY, 150% DB
_________________________________________________________________
MID-QUARTER CONVENTION
Tax MID-YEAR Quarter placed in service --
Year CONVENTION 1 2 3 4
1 15.000% 26.250% 18.750% 11.250% 3.750%
2 25.500 22.125 24.375 26.625 28.875
3 17.850 16.520 17,062 18.637 20.212
4-5 16.660 16.520 16.763 16.567 16.404
6 8.330 2.065 6.287 10.354 14.355
Total 100.000 100.000 100.000 100.000 100.000
_________________________________________________________________
ANNUAL DEPRECIATION PERCENTAGES FOR 7-YR PROPERTY, 150% DB
_________________________________________________________________
MID-QUARTER CONVENTION
Tax MID-YEAR Quarter placed in service --
Year CONVENTION 1 2 3 4
1 10.714% 18.750% 13.393% 8.036% 2.679%
2 19.133 17.411 18.559 19.707 20.854
3 15.033 13.680 14.582 15.484 16.386
4 12.249 12.160 12.221 12.275 12.874
5-7 12.249 12.160 12.221 12.275 12.182
8 6.124 1.520 4.582 7.673 10.661
Total 100.000 100.000 100.000 100.000 100.000
_________________________________________________________________
ANNUAL FRACTIONS FOR STRAIGHT LINE OVER N YEARS (N less than 26)
_________________________________________________________________
MID-QUARTER CONVENTION
Tax MID-YEAR Quarter placed in service --
Year CONVENTION 1 2 3 4
1 1/2 7/8 5/8 3/8 1/8
2-N 1 1 1 1 1
N+1 1/2 1/8 3/8 5/8 7/8
_________________________________________________________________
Depreciation formula: Basis divided by N times number from above
table.
ANNUAL FRACTIONS FOR 27 1/2 YEAR PROPERTY, REGULAR MACRS
_________________________________________________________________
Tax Month Placed in Service --
Year 1 2 3 4 5 6 7 8 9 10 11 12
1 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5
2-27 12 12 12 12 12 12 12 12 12 12 12 12
28 6.5 7.5 8.5 9.5 10.5 11.5 12 12 12 12 12 12
29 -- -- -- -- -- -- 0.5 1.5 2.5 3.5 4.5 5.5
_________________________________________________________________
Depreciation formula: Basis divided by 27 1/2 divided by 12
times number from above table.
ANNUAL FRACTIONS FOR 39 YEAR PROPERTY, REGULAR MACRS
_________________________________________________________________
Tax Month Placed in Service --
Year 1 2 3 4 5 6 7 8 9 10 11 12
1 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5
2-39 12 12 12 12 12 12 12 12 12 12 12 12
40 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5 10.5 11.5
_________________________________________________________________
Depreciation formula: Basis divided by 39 divided by 12 times
number from above table.
On September 15, 1994, Dave traded traded. The old tractor had a
remaining undepreciated value of $6,812. Dave paid $40,500
"boot" in the trade for the new combine.
17. The tractor is:
A. 3-year property
B. 5-year property
C. 7-year property
D. 10-year property
E. None of the above
18. If Dave does not expense any of the cost of the tractor, then
1994 depreciation will be (use regular MACRS and mid-year
convention):
A. $5,069.01
B. $5,914.13
C. $7,787.15
D. $10,902.30
E. None of the above
19. If Dave expenses the maximum on the tractor trade, and uses
the mid-quarter convention and regular MACRS, then 1994
depreciation will be:
A. $1,472.97
B. $1,606.92
C. $2,395.69
D. $2,492.28
E. None of the above
20. If Dave does not expense and uses the mid-year convention and
straight line depreciation over the alternate MACRS life, his
1994 depreciation will be:
A. $2,365.60
B. $5,507.19
C. $7,268.20
D. $1,160.39
E. None of the above
21. In order to use the mid-quarter convention, at least ______
percent of Dave's 1994 purchases of depreciable property must
have been made in the fourth quarter.
A. 60%
B. 50%
C. 40%
D. 33%
E. None of the above
22. Under MACRS, a machine shed is classified as
A. 15-year property
B. 20-year property
C. 27.5-year property
D. 31.5-year property
E. None of the above
PROBLEM IV -- Supply and Demand
(insert graph)
The above graph represents the supply of U.S. wool (SUS), the
demand for wool in the U.S. (DUS), the supply of foreign wool for
import (SF), and the total supply of wool (ST).
23. What is the market equilibrium price of wool in the U.S.?
A. P1
B. P2
C. P3
D. P4
E. P5
24. At the market equilibrium price, how much wool will be used
in the U.S.?
A. Q1
B. Q2
C. Q3
D. Q4
E. Q5
25. At the market equilibrium price, how much wool will be
imported?
A. Q1
B. Q2
C. Q3
D. Q4
E. Q5
26. Without foreign supply, the equilibrium price of wool would
be:
A. P1
B. P2
C. P3
D. P4
E. P5
For Questions 27 and 28, include foreign supply and assume the
government ends a 50-year old program to support U.S. sheep
producers by paying a subsidy on each pound of wool produced.
27. Without the wool subsidy the U.S. wool supply curve (SUS)
should
A. shift to the left and up.
B. shift to the right and down.
C. not change.
D. None of the above
28. Without the subsidy paid to U.S. sheep producers
A. imports of wool should go up.
B. the equilibrium price of wool should go up.
C. Both of the above
D. the foreign supply of wool should shift left.
E. None of the above
PROBLEM V - Marketing
In January, a farmer has 5,000 bushels of soybeans in the bin.
He sells the soybeans on June 15. Ignore storage, commissions,
and interest.
January 15 quotes: June 15 quotes:
July futures price = $6.20 July futures price = $6.50
Expected basis = $0.40 under Basis = $0.25 under the board
the board
Strike ---- Premiums ---- ---- Premiums ----
price Call Put Call Put
$5.00 $1.25 $0.05 $1.40 $0.01
$5.50 $0.81 $0.15 $0.90 $0.02
$6.00 $0.37 $0.25 $0.55 $0.08
$6.50 $0.25 $0.55 $0.15 $0.21
$7.00 $0.15 $1.05 $0.05 $0.55
29. What is the cash price of soybeans on June 15?
A. $6.20
B. $6.25
C. $6.50
D. $6.75
E. None of the above
30. If the farmer sold a futures contract on January 15 and
bought back the contract on June 15, what would be the
realized price per bushel (cash + net on futures) for his
soybeans?
A. $5.95
B. $6.20
C. $6.55
D. $6.80
E. None of the above
31. If the farmer bought a $6.50 Put on January 15 and sold the
Put on June 15, what would be the realized price per bushel
(cash + net on options) for his soybeans?
A. $5.91
B. $6.25
C. $6.59
D. $6.84
E. None of the above
32. If the farmer bought a $6.50 Put and sold a $6.50 Call on
January 15, and sold the Put and bought back the Call on
June 15, what would be the realized price per bushel (cash +
net on options) for his soybeans?
A. $6.01
B. $6.24
C. $6.49
D. $6.74
E. None of the above
33. Given all the information above, which of the following
actions taken on January 15 turned out to be the most
profitable?
A. Selling a futures contract.
B. Buying a $6.50 Put option.
C. Buying a $6.50 Put and selling a $6.50 Call.
D. Taking no market action.
PROBLEM VI - Investment Analysis
In February 1995, Junior Jones purchased his mother's 240-acre
farm. The farm is entirely in pasture and hay. Junior is trying
to decide whether he should continue to rent the farm to a
neighbor who has been paying $4,800 per year pasture rent, or to
buy cattle and graze the land himself. Junior figures there is
enough pasture and hay to support a 60-cow herd.
34. Junior can buy some good quality cows for $750 and bulls for
$1,500 each. He can borrow the money at the bank for 12%
interest. What will be his annual capital cost for 60 cows
and two herd bulls?
A. $1,750
B. $2,750
C. $5,640
D. $5,760
E. None of the above
35. Junior will have the hay custom baled. He has 40 acres of
alfalfa which averages 5 tons per acre. He can get it baled
and put in the barn for $40 per ton. What will his hay cost
be?
A. $1,600
B. $3,200
C. $4,000
D. $8,000
E. None of the above
36. Junior figures it will require 10 hours per week to take
care of the cows. But, since he enjoys working with cattle,
he only puts a value of $5 per hour on his labor. What will
be the annual charge for his labor?
A. $50
B. $480
C. $2,400
D. $2,600
E. None of the above
37. Junior figures he can get a 90% calf crop and market the
calves at 500 pounds for 85 cents per pound. What is his
expected gross income?
A. $19,786
B. $22,950
C. $25,500
D. $28,500
E. None of the above
38. Junior estimates that minerals, veterinary, taxes,
insurance, trucking, and other miscellaneous costs will
amount to $25 per cow per year. He figures that it will
cost him $500 annually to trade bulls. These costs total to
A. $1,500
B. $1,700
C. $1,850
D. $2,000
E. None of the above
39. Using the costs and returns identified above, Junior should
A. rent the pasture for $4,800.
B. get into the cattle business.
40. Given the above costs, what price for 500 pound calves will
leave Junior with the same $4,800 net as the rent provides?
A. $81.48
B. $84.15
C. $85.78
D. $92.69
E. None of the above
PROBLEM VII - Alternative Investments
P. H. Trouble recently purchased a 320-acre farm which the local
bank had acquired. The previous owner had not applied any lime
to the farm in years. P. H. had soil tests run on each of the
fields and the results show a need for more lime than P. H. can
afford in one year. After consulting with his local extension
agronomist, P. H. develops the following table of expected
results from liming.
Expected Annual Yield Per Acre
_________________________________________________________________
Field #1 Field #2 Field #3
Tons of 40 ac. 120 ac. corn-bean 140 ac.
lime alfalfa rotation fescue
applied hay Corn Beans pasture
per acre (tons) (bu.) (bu.) (AUM)
0 3.5 90 27 9.4
1 4.0 95 32 9.8
2 4.4 99 36 10.1
3 4.7 102 39 10.4
4 4.8 104 41 10.6
5 4.9 105 42 10.7
_________________________________________________________________
Assume alfalfa is worth $80 per ton, soybeans $6.00 per bushel,
corn $2.40 per bushel, and fescue $7 per AUM.
Lime costs $12 per ton (delivered and spread) and should last for
6 years. Therefore, figure $2 per ton per year to compare with
the above table.
41. If money were not a constraint, how much lime should P. H.
apply to the alfalfa?
A. 2 ton per acre
B. 3 ton per acre
C. 4 tons per acre
D. 5 tons per acre
E. None of the above
42. If money is not a constraint, how much lime should P. H.
apply to the fescue pasture?
A. 1 ton per acre
B. 2 ton per acre
C. 3 tons per acre
D. 4 tons per acre
E. None of the above
43. Field #2 is annually planted to 60 acres of corn and 60
acres of soybeans with the crops being rotated within the
field. If money is not a constraint, how much lime should
P. H. apply to Field #2?
A. 2 ton per acre
B. 3 ton per acre
C. 4 tons per acre
D. 5 tons per acre
E. None of the above
44. Money is a constraint. P. H. can only afford to spend
$2,400 (200 tons) on lime. To which fields should this 200
tons be applied?
A. 160 tons to Field #2 and 40 tons to Field #1
B. 120 tons to Field #2 and 80 tons to Field #1
C. 80 tons to Field #2 and 120 tons to Field #1
D. 80 tons to Field #1 and 120 tons to Field #3
E. None of the above
45. What rate of return on investment will P. H. get if he
applies 3 tons of lime per acre to his fescue pasture?
A. 5.0%
B. 11.5%
C. 16.7%
D. 21.4%
E. None of the above
PROBLEM VIII -- Time Value of Money
Use the following information to answer Questions 46-50.
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
46. A vineyard will produce no income during the first year,
$1,000 at the end of each year for the next 4 years and
$1,500 at the end of the sixth year. What is the present
value of this income stream?
A. $3,797
B. $4,087
C. $5,000
D. $6,000
E. None of the above
47. A beef cow produces after-tax returns at the end of the year
of $80/year for 5 years and can be sold for $500 at the end
of the fifth year. Assume the above table uses the
appropriate discount rate and determine the current value of
the cow.
A. $345.60
B. $624.70
C. $663.10
D. $836.50
E. None of the above
48. With three years of income remaining in a beef cow, how much
should she be worth using the above table?
A. $305.42
B. $398.17
C. $581.72
D. $606.81
E. None of the above
49. 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. Cannot tell
50. 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
47?
A. Increases the value
B. Decreases the value
C. No change in the value
D. Cannot tell
1995 STATE FFA FARM MANAGEMENT CONTEST
Key
Multiple Choice
1. C 11. C 21. C 31. D 41. C
2. C 12. C 22. E 32. C 42. B
3. B 13. A 23. C 33. D 43. A
4. C 14. A 24. A 34. B 44. C
5. A 15. C 25. C 35. C 45. C
6. C 16. B 26. C 36. C 46. B
7. D 17. D 27. D 37. D 47. C
8. B 18. B 28. A 38. B 48. B
9. D 19. B 29. D 39. C 49. C
10. B 20. C 30. C 40. E 50. D
Problems
1. D 11. A 21. C 31. A 41. D
2. B 12. D 22. B 32. A 42. C
3. E 13. B 23. B 33. D 43. D
4. C 14. C 24. D 34. D 44. C
5. C 15. C 25. B 35. D 45. C
6. B 16. D 26. D 36. D 46. A
7. D 17. C 27. A 37. B 47. B
8. D 18. A 28. C 38. D 48. C
9. B 19. C 29. B 39. A 49. A
10. C 20. A 30. A 40. C 50. B