Multiple Choice Identify the letter of the choice that best
completes the statement or answers the question.
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1.
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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 |
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2.
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Repayment capacity is best measured by the____
a. | enterprise budget. | c. | profit and loss statement. | b. | projected cash flow
statement. | d. | check
book. |
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3.
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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 |
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4.
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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 |
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5.
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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. |
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6.
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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. |
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7.
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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. |
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8.
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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 |
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9.
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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 |
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10.
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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 |
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11.
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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 |
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12.
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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 |
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13.
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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 |
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14.
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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 |
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15.
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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 |
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16.
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The majority of local government revenue comes from
a. | income tax | b. | sales tax | c. | inheritance tax | d. | property
tax |
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17.
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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 |
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18.
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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% |
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19.
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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 |
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20.
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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. |
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21.
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A line-of-credit to purchase fertilizer is:
a. | an operating loan | c. | a consumer loan | b. | a mortgage | d. | a long term
loan |
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22.
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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)?
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23.
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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. |
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24.
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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. |
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25.
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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 |
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26.
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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 |
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27.
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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 |
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28.
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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 |
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29.
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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 |
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30.
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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 |
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31.
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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 |
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32.
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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 |
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33.
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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. |
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34.
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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 |
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35.
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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 |
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36.
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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 |
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37.
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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 |
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38.
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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 |
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39.
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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 |
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40.
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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 |
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41.
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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 |
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42.
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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 |
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43.
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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 |
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44.
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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 |
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45.
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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 |
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46.
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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 |
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47.
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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 |
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48.
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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 |
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49.
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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 |
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50.
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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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