Name: 
 

2003 Minnesota State Farm Business Management Test



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 1. 

Calculate the first year payment on the constant principal/decreasing payment loan for $240,000 over 20 years at 9% interest.
a.
$12,450
b.
$22,350
c.
$33,600
d.
$36,200
 

 2. 

Repayment capacity is best measured by the____
a.
enterprise budget.
c.
profit and loss statement.
b.
projected cash flow statement.
d.
check book.
 

 3. 

Which of the following forms of business organizations would NOT have a liability shield to protect the owner’s personal property?
a.
general partnership
c.
sub-chapter corporation
b.
limited liability company
d.
corporation
 

 4. 

A written agreement by which an owner of property transfers title to someone for the benefit of beneficiaries is a:
a.
trust
c.
corporation
b.
partnership
d.
sole proprietorship
 

 5. 

When preparing an annual budget for a corn production enterprise, land ownership costs are considered to be :
a.
a variable cost.
c.
an operating cost.
b.
a depreciable cost.
d.
a fixed cost.
 

 6. 

When the size of the soybean harvest exceeds locally available farm and elevator storage, what usually happens to the basis?
a.
narrows.
c.
goes out of existence.
b.
widens.
d.
usually the same all year long.
 

 7. 

A decrease in the value of the U.S. dollar relative to the currency of other countries should result in:
a.
more costly imports to the U.S.
c.
decreased U.S. exports.
b.
less costly imports to the U.S.
d.
no effect on imports or exports.
 

 8. 

The most important aspect of an automobile insurance policy is the:
a.
accidental death and disability section
d.
emergency road service section
b.
collision section
e.
liability section
c.
comprehensive section
 

 9. 

It is profitable for a farmer to borrow money to expand his farm business when the borrowed money:
a.
will increase volume of business
b.
can improve the level of production
c.
can be secured at a low interest rate
d.
returns more than the cost of borrowing money
 

 10. 

Milk production per cow:
a.
should be the maximum possible
c.
should increase over time for the herd
b.
should be related to feed costs
d.
is related to investment in facilities
 

 11. 

A $80,000 loan amortized at 9% interest for 10 years has annual payments of $12,465.61. use this information to answer the following question.

How much of the first year’s payment is principal?
a.
$3465.59
b.
$5085.61
c.
$5265.59
d.
$7200.41
 

 12. 

A $80,000 loan amortized at 9% interest for 10 years has annual payments of $12,465.61. use this information to answer the following question.

If the 10th and final payment includes $1029.27 of interest, what was the outstanding principal balance after the 9th payment?
a.
$9102.93
b.
$11219.04
c.
$11436.34
d.
$13494.87
 

 13. 

A $80,000 loan amortized at 9% interest for 10 years has annual payments of $12,465.61. use this information to answer the following question.

How much total interest is paid over the life of the loan?
a.
$7200
b.
$44656
c.
$72000
d.
$124656
 

 14. 

A market where there is complete interaction of supply and demand without outside interference is known as a ______ market.
a.
bear
b.
free
c.
cooperative
d.
bull
 

 15. 

What is the best objective to follow when approaching tax management?
a.
Pay no federal income tax
b.
minimize the income tax paid
c.
attempt to equalize the amount of tax paid each year
d.
attempt to maximum net income after taxes
 

 16. 

The majority of local government revenue comes from
a.
income tax
b.
sales tax
c.
inheritance tax
d.
property tax
 

 17. 

Because sales and excise taxes are the same for people of all income levels, they are often called
a.
flat
b.
progressive
c.
regressive
d.
natural
 

 18. 

On November 1, a rancher borrowed #30,000 to buy cattle to place in his feedlot. On May 1, he repaid the #30,000 plus $2,250 in interest. What annual rate of interest did he pay?
a.
8.0%
b.
10.5%
c.
15.0%
d.
16.5%
 

 19. 

Which of the following income does not have to be reported on your Federal Income Tax return.
a.
interest on a personal savings account
c.
dividends from a Cooperative
b.
rent for a farm building
d.
a loan from a bank
 

 20. 

Marginal analysis is used to :
a.
determine the most profitable level of an input to use.
b.
measure the efficiency of a business enterprise.
c.
help managers decide between two different options.
d.
determines the maximum productivity on inputs.
 

 21. 

A line-of-credit to purchase fertilizer is:
a.
an operating loan
c.
a consumer loan
b.
a mortgage
d.
a long term loan
 

 22. 

A farmer earned $10,000 from farming last year. The farming operation  controls $150,000 of assets of which $50,000 are owed. What was the farmer’s rate of return on equity (ROE)?
a.
5%
b.
10%
c.
15%
d.
20%
 

 23. 

A difference between buying or selling a futures contract and buying a put or a call option is:
a.
the cost of the futures contract is fixed, but the option is subject to margin calls.
b.
the cost of the option is fixed, but the futures contract is subject to margin calls.
c.
no difference- both are subject to margin calls.
d.
no difference- neither is subject to margin calls.
 

 24. 

Renting farmland on shares of production rather than cash results in:
a.
less risk for the landlord and more risk for the tenant.
b.
more risk for the landlord and less risk for the tenant.
c.
more risk for the both the landlord and the tenant.
d.
less risk for both the landlord and the tenant.
 

 25. 

If grain sorghum has 97% of the feeding value of corn on a pound-for pound basis and corn is selling for $2.25 per bushel (a bushel of corn weighs 56 pounds), then a hundredweight of grain sorghum is worth:
a.
$2.18
b.
$3.65
c.
$3.90
d.
$4.02
 

 26. 

Which of the following criteria for ranking investments considers the time value of money?
a.
simple rate of return method
c.
the extrapolation method
b.
payback method
d.
net present value method
 

 27. 

The percent return on equity (ROE) measures the percent return on:
a.
total liabilities
c.
net worth
b.
net farm income from operations
d.
total assets
 

 28. 

The cost of assets which have a life of longer than one year (like tractors & machinery) is claimed on the income statement by:
a.
deducting depreciation
b.
deducting the principal and interest on any loans as they are paid
c.
deducting the cost of the asset when the cost is paid
d.
deducting depreciation and deducting the cost of the asset when the cost is paid
 

 29. 

Which of the following is a capital investment in farm accounting?
a.
lease of a tractor
c.
steers
b.
dairy cow
d.
propane for grain drier
 

 30. 

The main purpose of a farm inventory is to show the:
a.
net profit margin of the business
b.
cash-flow in the business
c.
list all assets and liabilities plus changes from year to year
d.
expense and receipts in the business
 

 31. 

A feedlot operator purchased 100 feeder steers with an average weight of 700 pounds and sells them at an average weight of 1,050 pounds. The total feed cost is $21,000. Feed cost per pound of gain is:
a.
$0.20
b.
$0.30
c.
$0.60
d.
$0.70
 

 32. 

If a farmer writes a check for $10,000 to pay off the remainder of the principal of a tractor loan:
a.
assets are reduced and equity declines.
b.
liabilities are reduced and equity increases.
c.
assets and liabilities are reduced and equity is unaffected.
d.
assets, liabilities, and equity each decline
 

 33. 

A farmer who wants the right but not the obligation to sell a particular commodity at a specific price level would use a:
a.
basis contract.
c.
call option.
b.
put option.
d.
cash forward contract.
 

 34. 

If high oil corn has the same production cost per acre as regular corn but can be sold for $0.20 per bushel more, what yield of high oil corn is needed to equal 130 bushels of regular corn at $2.25 per bushel?
a.
109.7 bushels
b.
142.7 bushels
c.
117.5 bushels
d.
119.4 bushels
 

 35. 

The process of finding the current value of a dollar to be received at a later time is:
a.
compounding
c.
payback analysis.
b.
forward contracting.
d.
discounting
 

 36. 

Which of the following types of life insurance policies does not have a cash value?
a.
whole life
c.
universal life
b.
term life
d.
all of these have cash value
 

 37. 

A farming operation set up as a corporation is:
a.
always managed by the owners
b.
never as efficient or profitable as the sole proprietorship farm
c.
exempt from Federal income taxes
d.
designed to shield the owners of stock from additional liability and serve as an estate planning tool
 

 38. 

One of the main disadvantage of the father son partnership is that:
a.
the farm may not be large enough
b.
the son may not have enough capital to invest
c.
father and son often have different goals and objectives
d.
farm prices are too low
 

 39. 

Which one of the following would tend to reduce risk for the manager of a farm business?
a.
selecting the crop with the highest net return
b.
selling all commodities
c.
diversifying into several enterprises
d.
specializing in a single enterprise
 

 40. 

A subchapter S corporation when compared to a subchapter C corporation will
a.
allow a farmer to pay lower taxes
b.
be exempt from federal corporation income tax
c.
offer better protection against liability claims
d.
be the preferred form of farm corporation
 

 41. 

The capitalized value of a plot of land that yields $500 per year in net returns is $_________ if the interest rate is 10 percent.
a.
$50
b.
$200
c.
$5,000
d.
$50,000
 

 42. 

If a farmer installs a new confinement feeding system for cattle and the price of market beef suddenly drops, he should:
a.
stop feeding grain and finish on pasture and roughages
b.
stop feeding cattle and convert the building to a swine finishing house
c.
stop feeding cattle and convert the building to a poultry laying house
d.
continue feeding cattle as long as variable production costs are covered
 

 43. 

When a farmer increases his investment in land, buildings, and equipment without increasing the total units of production, the cost per unit of production:
a.
decreases
c.
remains the same
b.
increases
d.
varies with the operator
 

 44. 

Pork and beef are substitute food items, if the price of beef rises, the consumption of pork is likely to:
a.
decrease
b.
increase
c.
not change
 

 45. 

One would expect the greatest price to rise in product when:
a.
demand increases and supply increases
b.
demand decreases and supply increases
c.
demand increases and supply decreases
d.
demand decreases and supply decreases
 

 46. 

The best indication of the dollar amount that a farmer has for living expenses - for making loan repayments - and for making additional investments would be
a.
partial budget
c.
income statement
b.
inventory change statement
d.
net worth statement
 

 47. 

In preparing a cash flow plan, one should NOT include which of the following expense items:
a.
principal payments on long term debt
b.
cash paid for machinery purchases
c.
machinery depreciation
d.
family living and other n on-farm expense
 

 48. 

One who trade in the futures market and attempts to anticipate price changes and market activities to make a profit but does not hold the physical commodity is a:
a.
broker
b.
hedger
c.
buyer
d.
speculator
 

 49. 

When a farmer agrees to a contract in producing a product for a firm, the farmer’s primary reason is generally to:
a.
guarantee a price for his product in advance
b.
increase the volume of business
c.
provide himself when year-round labor
d.
improve the quality of commodity
e.
utilize his management abilities
 

 50. 

The federal government relies mainly on the ________ tax for its revenue
a.
income tax
b.
sales tax
c.
inheritance tax
d.
property tax
 



 
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