1998 District 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 score
sheet provided. There is only one correct answer to each
question.
1. Corn has an expected yield of 125 bushels per acre and a
production cost of $180.00 per acre. Expected market prices
are $2.60 per bushel for corn and $7.00 per bushel for
soybeans. Soybeans can be raised at a production cost of
$130 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. 36.4 bushels
C. 39.3 bushels
D. 46.4 bushels
E. None of the above
2. If during this or the preceding calendar year you, as a
farmer-employer, paid cash wages of $20,000 or more to farm
workers in any calendar quarter or if you employed 10 or more
farm workers for some part of a day during 20 different weeks
of the year, then you
A. must pay Federal Unemployment Tax on your workers.
B. are eligible for the Farm Employer Tax Credit.
C. are exempt from paying self-employment tax.
D. have to file on Schedule C rather than Schedule F.
E. None of the above
3. The capital gains taxes that would become due if a farmer
sells 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
4. For tax year 1997, the social security wage base was
A. $50,000
B. $61,200
C. $62,700
D. $65,400
E. None of the above
5. A farmer purchases 500-pound feeder steers for 95› per pound
and plans to sell the steers at 750 pounds. The farmer
estimates the total cost of gain to be 50› per pound. The
nearest breakeven price when the steers are sold at 750
pounds is
A. 58.13›/pound
B. 64.75›/pound
C. 75.00›/pound
D. 80.00›/pound
E. None of the above
6. How many total acres are included in "NE 1/4 of Section 15
and SE 1/4 of NW 1/4 of Section 15, Twp. 10N, R4W of the 5th
Principle Meridian"?
A. 120 acres
B. 160 acres
C. 200 acres
D. 240 acres
E. None of the above
7. How much perimeter fence would be required to completely
enclose the parcel of land described in question 6?
A. 1.5 miles
B. 2.0 miles
C. 2.5 miles
D. 3.0 mile
E. None of the above
8. A soybean producer decides to store his soybeans in the local
elevator for 5 months. The price at harvest is $6.80 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 $34,000 at 8% 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. $7.18
B. $7.37
C. $7.45
D. $7.66
E. None of the above
9. A farmer is purchasing a new baler at a cost of $25,000. His
dealer will finance the baler under the following terms: 15%
down payment with the balance repaid in equal payments over
the next six years at 8% APR. The farmer expects the baler
to last for 8 years and have a salvage value of $6,000. How
much interest will the farmer pay the first year of the loan?
A. $1,547
B. $1,700
C. $1,820
D. $2,000
E. None of the above
10. 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.
E. None of the above
11. If the interest rate is 7%, what is the present value of a
dollar to be received by a producer two years from now?
A. $0.840
B. $0.857
C. $0.873
D. $1.070
E. None of the above
12. How many pounds of 48% protein supplement must be mixed with
10% protein wheat to make a ton of 14% protein feed?
A. 211 pounds
B. 316 pounds
C. 400 pounds
D. 439 pounds
E. None of the above
13. A feedlot operator buys feeder steers, finishes them, and
sells them. The operator estimates that finished steers will
sell for $67 per cwt. and that it will cost $200 per head to
bring them from the 750 pound purchase weight to the 1100
pound selling weight. What is the highest price the operator
can pay for 750 pound feeder steers to break even?
A. $67.60/cwt.
B. $70.27/cwt.
C. $71.60/cwt.
D. $76.14/cwt.
E. None of the above
14. A $1 deductible expense (before tax) will cost ______ after
tax if the farmer's marginal tax rate is 43%.
A. $0.00
B. $0.43
C. $0.57
D. $1.00
E. None of the above
15. A farmer has total assets of $900,000 of which land is
$700,000. The farmer's debt:equity ratio is 0.8. What will
the farmer's debt:equity ratio be if the value of land
inflates by 10%?
A. 0.702
B. 0.714
C. 0.720
D. 0.880
E. None of the above
16. A farmer traded a tractor with an adjusted tax basis of
$10,000. The new tractor had a list price of $60,000. The
dealer allowed a $20,000 trade-in for the old tractor. The
farmer paid $15,000 of his own money and borrowed $25,000 to
pay the balance. What is the tax basis of the new tractor?
A. $25,000
B. $45,000
C. $50,000
D. $60,000
E. None of the above
17. 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
18. If the grain farmer in the above problem suffers a loss on
his options contract, then this loss will be taxed as
A. an ordinary loss.
B. a capital loss.
C. a non-deductible farm expense.
D. a personal expense.
E. None of the above
19. A farmer has a debt : worth ratio of 1 : 2. The current
liabilities total $20,000 and the non-current liabilities
total $50,000. What is the value of the assets?
A. $420,000
B. $280,000
C. $210,000
D. $140,000
E. None of the above
20. A cattle feeding operation has sales of $750,000, feed
purchases of $300,000, other costs of $400,000, an opening
inventory of $420,000, and a closing inventory of $400,000.
What is the net farm income for this operation on an accrual
basis?
A. $30,000
B. $50,000
C. $70,000
D. $750,000
E. None of the above
21. The main difference between cash and accrual accounting is
that accrual accounting includes
A. a charge for unpaid family labor.
B. depreciation.
C. an adjustment for changes in inventory.
D. sales of capital assets.
E. None of the above
22. A producer sells 12 feeder steers for $85/cwt. The average
weight per steer is 625 pounds. There is a 2.5% sales
commission and yardage fees of $2.75 per head. The net
amount received for the pen of steers would be
A. $4,156.20
B. $4,240.80
C. $5,649.30
D. $6,182.62
E. None of the above
23. If the tenant pays the entire cost of fertilizer, under which
rental agreement would he want to apply the most fertilizer?
A. Crop share of 40% to tenant and 60% to landlord.
B. Crop share of 50% to tenant and 50% to landlord.
C. Crop share of 60% to tenant and 40% to landlord.
D. Cash rent.
E. None of the above
24. The maximum amount which can be expenses under IRS Code
Section 179 was increased to $18,500 for tax year 1998. For
1997 the maximum was
A. $10,000
B. $17,000
C. $17,500
D. $18,000
E. None of the above
25. A beneficiary deed is an example of a
A. mortgage instrument.
B. revokable or living trust.
C. futures market security document.
D. non-probate transfer mechanism.
E. None of the above
26. Valuing assets at original cost plus capitalized improvements
minus accumulated depreciation and Section 179 expensing is
called the
A. cost method.
B. market value method.
C. tax method.
D. net worth method.
E. None of the above
27. A $50,000 loan amortized at 9% interest for 15 years yields
annual payments of $6,200.00. How much of the first year's
payment is principal?
A. $1,092.61
B. $1,700.00
C. $2,592.61
D. $4,000.00
E. None of the above
28. For the above loan of $50,000, if the 15th and final payment
includes $511.93 of interest, what was the outstanding
principal balance after the 14th payment?
A. $5,688.07
B. $4,715.38
C. $4,622.77
D. $377.23
E. None of the above
29. For the above loan of $50,000, how much total interest is
paid over the life of the loan?
A. $101,852.20
B. $51,852.20
C. $43,000.00
D. $7,544.60
E. None of the above
30. The Chicago Mercantile Exchange has changed its hog futures
contract from a delivery system to a cash settlement system.
The reason for this change was to
A. improve convergence.
B. prevent convergence.
C. comply with CFTC regulations.
D. reduce Exchange paperwork.
E. None of the above
31. A farmer should issue an IRS Form 1099 for which of the
following?
A. $750 paid to a neighbor for hay.
B. $500 paid to a neighbor for custom work.
C. $1500 paid to a neighbor for a bull.
D. $650 paid to a neighbor for land rent.
E. All of the above
32. When required, you must send an IRS Form 1099-MISC to the
individual paid by
A. December 31.
B. January 31.
C. March 1.
D. April 15.
E. 90 days after payment.
33. 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.
34. 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
35. 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 $12,000. The variable cost is
$12 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) purchasing the combine?
A. 500
B. 833.3
C. 1,000
D. 1,200
E. None of the above
36. If alfalfa haylage as fed contains 58% moisture and 6.5%
protein, the dry matter would be what percent protein?
A. 3.77
B. 6.50
C. 11.21
D. 15.48
E. None of the above
37. For 1997, the self-employment tax rate for Medicare is
A. 2.90%.
B. 7.65%.
C. 15.30%.
D. 25.00%.
E. None of the above
38. On March 1, 1997, Lynn borrowed $25,000 to buy seed and
fertilizer. On December 1, 1997, she repaid the $25,000
along with $1828.12 interest. What annual interest rate did
she pay?
A. 9.20%
B. 9.75%
C. 10.50%
D. 11.75%
E. None of the above
39. A Subchapter S corporation can have no more than
A. 10 shareholders.
B. 15 shareholders.
C. 35 shareholders.
D. 75 shareholders.
E. There is no limit on number of shareholders.
40. An LLC (Limited Liability Company) is usually
A. taxed like a corporation.
B. taxed like a partnership.
C. not for profit and therefore not taxed.
D. illegal in Missouri.
E. None of the above
_________________________________________________________________
1998 DISTRICT 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
The Farm Financial Standards Task Force has recommended that farm
balance sheets be prepared with two time classifications --
current and non-current. Items that had been classified as
Intermediate or Long-term are now classified as non-current.
Using the information below, complete the net worth statement for
January 1, 1998:
Land . . . . . . . . . . . . . . . . . $522,000
Autos . . . . . . . . . . . . . . . . . 42,000
Machinery and equipment . . . . . . . . 117,000
Cows . . . . . . . . . . . . . . . . . 19,000
Calves . . . . . . . . . . . . . . . . 5,300
Sows and boars. . . . . . . . . . . . . 10,000
Market hogs . . . . . . . . . . . . . 68,000
Checking and savings. . . . . . . . . . 15,300
Corn. . . . . . . . . . . . . . . . . . 10,200
Hog buildings . . . . . . . . . . . . . 125,000
Feed and hay. . . . . . . . . . . . . . 11,750
Accrued interest owed . . . . . . . . . 31,900
Accrued taxes owed. . . . . . . . . . . 21,250
30-year land loan balance is $210,000.
$9,000 plus interest is due March 1 of each year.
7-year hog building loan balance is $66,000.
$22,000 plus interest is due August 31 of each year.
5-year combine loan balance is $46,500.
$15,500 plus interest is due each February 1.
Current Assets: Current Liabilities:
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
Total _________________ Total _________________
Non-current Assets: Non-current 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, 1998, was:
A. $ 37,250
B. $105,250
C. $110,550
D. $139,550
E. None of the above
2. The total value of non-current assets was:
A. $764,000
B. $806,000
C. $825,000
D. $835,000
E. None of the above
3. The total value of current liabilities was:
A. $ 46,500
B. $ 53,150
C. $ 99,650
D. $375,650
E. None of the above
4. The total value of non-current liabilities was:
A. $276,000
B. $322,500
C. $329,150
D. $375,650
E. None of the above
5. The net worth was:
A. $235,905
B. $291,100
C. $527,005
D. $945,550
E. None of the above
6. The current ratio was:
A. 0.369
B. 0.901
C. 1.109
D. 1.142
E. None of the above
7. The percent equity (net worth/assets) was:
A. 39.7
B. 42.5
C. 60.3
D. 68.3
E. None of the above
PROBLEM II -- Enterprise Budget
Use the following dairy cow budget to answer Questions 8 through
16.
_________________________________________________________________
DAIRY COW REPLACEMENTS IN 100 COW HERD
20,000 pounds of milk sold per year per cow unit
39% replacement rate
Operating Inputs Units Price Quantity Value
Gov Dvsrn asses Cwt 0.05 200.00 10.00
Promotion assess Cwt 0.15 200.00 30.00
Milk hauling Cwt 0.57 200.00 14.00
Dairy ration, 16% Cwt 8.70 98.67 858.43
Hay Tons 95.00 5.59 531.05
Salt & minerals Lbs 0.15 130.00 19.50
Milk replacer Lbs 0.75 5.00 3.75
Calf starter Lbs 0.11 50.00 5.50
Pasture AUMS 16.00 3.48 55.68
Breeding fees Dol 25.00 1.00 25.00
Vet medicine Dol 52.00 1.00 52.00
Supplies Dol 39.00 1.00 39.00
Accounting Hd 18.00 1.00 18.00
Utilities Dol 47.00 1.00 47.00
Machinery labor Hr 6.00 10.69 64.18
Equipment labor Hr 6.00 6.27 37.62
Livestock labor Hr 6.00 43.40 260.40
Mach fuel, lube, repair 102.91
Equip fuel, lube, repair 27.74
Total Operating Costs 2301.76
____________________________________
Fixed Costs Amount Value
Machinery
Interest @ 10.675% 371.17 39.62
Depr, taxes, insurance 54.98
Equipment
Interest @ 10.675% 452.75 48.33
Depr, taxes, insurance 70.22
Livestock
Dairy cow, 20,000 1475.00
Dairy heifer, 20,000 520.00
Dairy repl. heifer 20,000 273.00
Interest @ 10.675% 2268.00 242.11
Total Fixed Costs 455.25
______________________________________
Production Units Price Quantity Value
Milk Cwt 12.90 200.00 2580.00
Dairy cows Cwt 43.00 4.44 190.92
Dairy bull calf Hd 105.00 0.48 50.41
Dairy heifers Cwt 60.00 0.04 2.38
Total Receipts 2823.71
_______________________________________
Returns above total operating costs 521.95
Returns above all specified costs 66.70
_________________________________________________________________
8. Total operating cost per cow is:
A. $521.95
B. $588.65
C. $2,301.76
D. $2,823.71
E. None of the above
9. The return above total operating cost per cow is:
A. $66.70
B. $455.25
C. $501.52
D. $521.95
E. None of the above
10. How many hours of labor are budgeted per cow?
A. 10.696
B. 43.400
C. 60.366
D. 260.400
E. None of the above
11. What price per ton is paid for hay?
A. $5.59
B. $95.00
C. $211.86
D. $531.05
E. None of the above
12. What is the total budgeted interest cost per cow?
A. $330.06
B. $1,188.49
C. $3,091.92
D. $3,190.59
E. None of the above
13. If each cow is milked for 305 days, how many pounds of milk
are given per cow per day on average?
A. 8.46
B. 12.90
C. 65.57
D. 200.00
E. None of the above
14. What price per pound is paid for hay?
A. 2.66›
B. 4.75›
C. 5.59›
D. 26.51›
E. None of the above
15. What interest rate is used in this budget?
A. 3.900%
B. 10.675%
C. 12.500%
D. 16.000%
E. None of the above
16. If cull cow prices drop to 34› per pound and bull calves
sell for $50 each, what will be total receipts per cow?
A. $2,757.34
B. $2,783.34
C. $2,783.75
D. $2,797.31
E. None of the above
PROBLEM III -- Income Tax Management
Use the following tables to calculate depreciation for questions
in Problem III.
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 June 30, 1997, Sam traded tractors. The old tractor had a
remaining undepreciated value of $10,688. Sam paid $20,000
"boot" in the trade for the new tractor.
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 Sam does not expense any of the cost of the tractor, then
1997 depreciation will be (use regular MACRS and mid-year
convention):
A. $1,699.30
B. $3,287.91
C. $4,110.04
D. $4,603.20
E. None of the above
19. If Sam expenses the maximum ($18,000) on the tractor trade,
and uses the mid-quarter convention and regular MACRS, then
1997 depreciation will be:
A. $1,359.39
B. $1,699.30
C. $2,379.00
D. $4,603.20
E. None of the above
20. If Sam does not expense and uses the mid-year convention and
straight line depreciation over the alternate MACRS life,
his 1997 depreciation will be:
A. $1,534.40
B. $2,192.00
C. $3,068.80
D. $4,384.00
E. None of the above
21. In order to use the mid-quarter convention, at least ______
percent of Sam's 1997 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 grain bin is classified as
A. 7-year property
B. 10-year property
C. 15-year property
D. 20-year property
E. None of the above
PROBLEM IV -- Supply and Demand
(See graph in attached file)
The above graph represents the supply of foreign beef available
for import into the U.S. (SF), the supply of beef produced in the
U.S. (SUS), the total supply of beef in the U.S. (ST), the foreign
demand for U.S. beef (DF), the domestic demand for beef (DUS), and
the total demand for beef (DT).
23. What is the market equilibrium price of beef in the U.S.?
A. P1
B. P2
C. P3
D. P4
E. None of the above
24. At the market equilibrium price, how much beef will be
imported into the U.S.?
A. Q1
B. Q2
C. Q3
D. Q4
E. Q5
25. At the market equilibrium price, how much beef will be
exported?
A. Q1
B. Q2
C. Q3
D. Q4
E. Q5
26. Without foreign trade, the equilibrium price of beef would
be
A. P1
B. P2
C. P3
D. P4
E. None of the above
For questions 27 and 28, assume South Korea, a major importer of
beef, has a financial crisis and has to stop importing beef.
27. The lack of Korean beef imports will cause the U.S. market
equilibrium price to
A. increase.
B. decrease.
C. not change.
D. None of the above
28. The financial crisis in Korea should cause U.S. beef exports
to
A. increase.
B. decrease.
C. stay the same.
D. None of the above
PROBLEM V - Marketing
On November 10, a farmer has 10,000 bushels of soybeans in his
bins. He sells them on April 5. Ignore commissions, storage
cost, and interest.
November 10 quotes: April 5 quotes:
May futures price = $6.80 May futures price = $6.95
Expected basis = $0.10 Basis = $0.05 under the board
under the board
Strike ---- Premiums ---- ---- Premiums ----
price Call Put Call Put
$6.75 $0.35 $0.30 $0.30 $0.05
$7.00 $0.20 $0.50 $0.18 $0.11
$7.25 $0.10 $0.72 $0.09 $0.33
$7.50 $0.05 $0.96 $0.04 $0.57
$7.75 $0.02 $1.21 $0.01 $0.82
$8.00 $0.01 $1.46 $0.01 $1.07
29. What is the cash price of soybeans on April 5?
A. $6.70
B. $6.90
C. $6.95
D. $7.00
E. None of the above
30. If the farmer sold a futures contract on November 10 and
bought back the contract on April 5, what would be the
realized price per bushel (cash + net on futures) for
these soybeans?
A. $6.75
B. $6.80
C. $6.90
D. $6.95
E. None of the above
31. If the farmer bought a $7.00 Put on November 10 and sold
the Put on April 5, what would be the realized price per
bushel (cash + net on options) for his soybeans?
A. $6.51
B. $6.56
C. $6.90
D. $6.95
E. None of the above
32. If the farmer bought a $7.00 Put and sold a $7.00 Call on
November 10, and sold the Put and bought back the Call on
April 5, what would be the realized price per bushel (cash
+ net on options) for his beans?
A. $6.53
B. $6.58
C. $6.67
D. $7.27
E. None of the above
33. Given all the information above, which of the following
actions taken on November 10 turned out to be the most
profitable?
A. Selling a futures contract.
B. Buying a $7 Put option.
C. Buying a $7 Put and selling a $7 Call.
D. Taking no market action.
PROBLEM VI - Time Value of Money
Use the following information to answer Questions 34-40.
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
34. A vineyard will produce no income during the first
year, $5,000 at the end of each year for the next 4
years and $4,000 at the end of the sixth year. What is
the present value of this income stream?
A. $16,955
B. $19,200
C. $21,520
D. $29,000
E. None of the above
35. A beef cow produces after-tax returns at the end of the
year of $60/year for 6 years and can be sold for $350
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. $265.20
B. $468.20
C. $615.20
D. $710.00
E. None of the above
36. With two years of income remaining in a beef cow, how
much should she be worth using the above tables?
A. $291.90
B. $396.72
C. $454.82
D. $470.00
E. None of the above
37. If the farmer expects interest rates to increase, but
no change 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
38. If the average tax rate is expected to increase over
the next three years so that the cow no longer nets
$60/year after taxes. What impact would this have on
your answer to question 45?
A. Increases the value
B. Decreases the value
C. No change in the value
D. Can not tell
39. What is the annual payment on a $10,000 loan amortized
over 6 years?
A. $1,666.67
B. $2,000.00
C. $2,262.44
D. $2,604.17
E. None of the above
40. 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
_________________________________________________________________
1998 DISTRICT FFA FARM MANAGEMENT CONTEST
Key
Multiple Choice
1. C 11. C 21. C 31. D
2. A 12. A 22. D 32. B
3. D 13. C 23. D 33. B
4. D 14. C 24. D 34. A
5. D 15. A 25. D 35. D
6. C 16. C 26. A 36. D
7. C 17. C 27. B 37. A
8. A 18. B 28. A 38. B
9. B 19. C 29. C 39. D
10. B 20. A 30. A 40. B
Problems
1. C 11. B 21. C 31. A
2. D 12. A 22. A 32. A
3. C 13. C 23. C 33. D
4. A 14. B 24. A 34. A
5. E 15. B 25. B 35. B
6. C 16. A 26. B 36. B
7. C 17. C 27. B 37. A
8. C 18. B 28. B 38. B
9. D 19. B 29. B 39. C
10. C 20. A 30. A 40. C