Farm Management

Multiple Choice Non-Math 2005

2005

4. The present value formula for estimating land prices (PV = annual net returns ÷ discount rate) assumes

A. future prices and yields can be estimated accurately. B. the discount rate is appropriate. C. income will continue to infinity. D. net income will not trend up or down. E. All of the above

• e

7. How many acres are in a section of land? A. 40 acres B. 160 acres C. 640 acres D. 1,000 acres E. None of the above

• c

8. A township is six miles square and includes

A. 6 sections. B. 36 sections. C. 40 sections. D. 160 sections. E. None of the above

• b

10. When a farmer borrows money to purchase land, he usually must offer the title to the property as security until the debt has been repaid. This credit instrument is commonly referred to as a

A. sales contract. B. promissory note. C. mortgage. D. check. E. None of the above

• c

11. A decrease 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. decreased exports. D. no effect on imports or exports. E. None of the above

• a

12. An increase in the value of farm land will

A. increase the rate of return to equity. B. increase the rate of return to assets. C. increase the capital turnover ratio. D. all of the above. E. None of the above

• e

15. The best measure of a firm's ability to make a short-term loan payment is

A. debt/asset ratio. B. solvency ratio. C. current ratio. D. leverage ratio. E. net capital ratio

• c

16. A constant payment loan with payments consisting of principal and interest is called

A. an amortized loan. B. a complementary loan. C. a discounted loan. D. a fixed rate loan. E. a capital loan.

• a

18. 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 with respect to the herd (it does not depend on whether he borrowed money to buy the cows or not). This illustrates the principle of

A. marginal cost. B. fixed cost. C. opportunity cost. D. variable cost. E. alternative cost.

• c

19. Net worth is a measure of

A. managerial ability. B. financial position. C. profitability. D. liquidity. E. All of the above

• b

20. 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

• d

25. If the U.S. wheat industry has an inelastic demand curve, a decrease in the amount of wheat supplied to the market would

A. have no effect on total revenues in the wheat industry. B. increase the total revenues in the wheat industry. C. decrease the total revenues in the wheat industry. D. cause a sharp increase in the demand for wheat. E. None of the above

• b

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

• c

31. To consider the time value of money in analyzing a farm investment, one should calculate

A. net present value. B. net cash flow over the lifetime of the investment. C. average profits over the investment lifetime. D. average costs over the investment lifetime. E. None of the above

• a

33. 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

• c

34. A trader with a long position in the futures market A. profits when prices go down, loses when prices go up. B. profits when prices neither go up nor down. C. profits when prices go up, loses when prices go down. D. loses when prices neither go up nor down. E. cannot lose money.

• c

35. Livestock, stored grain, land, and personal property used to secure a loan are

A. collateral. B. inventory. C. liabilities. D. net worth. E. Illiquid.

• a

36. Which of the following is not a supply shifter for farm products?

A. Weather B. New technology C. Government programs D. Consumer income E. None of the above

• d

37. If the price of a September Call option is higher today than yesterday, then one would expect that the price of a September futures contract is

A. higher today than yesterday. B. lower today than yesterday. C. unchanged from yesterday. D. either up or down. There is no relationship between futures

prices and prices of options E. None of the above

• a

38. The main reason for hedging is

A. to make more profit. B. to insure against a production loss. C. to reduce the price risk associated with producing or storing a cash commodity. D. to take an opposite position from the speculator. E. None of the above

• c

39. Cooperatives pay patronage refunds according to

A. one man, one vote. B. size of farm. C. amount of business done by patron. D. total assets. E. All of the above

• c

40. Roundup ready soybeans are now widely used by farmers. This has caused the demand curve for Treflan (a grass control herbicide for soybeans) to move

A. upward and to the right. B. downward and to the left. C. not at all. D. None of the above

• b