AGEC 330 Lecture 1, AGEC 330, Chapter 2 (pt 2) Time Value of Money Basics, AGEC 330 Exam 1, Ch. 9 Practice Problems, TAMU AGEC 330 with Leatham, AGEC 330 Lecture 15, AGEC 330, AGEC 330 Exam 4, AGEC 330 Lecture 24, AGEC 330 Exam 3 Review, AGEC 330 fin...

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Future Semiconductors is evaluating a new etching tool. The equipment costs $1.om and will generate after-tax cash inflows of $0.4m per year for six years. Assume the firm has a 15% cost of capital. What's the NPV of the investment?

$0.51m

What is the real price of an orange in 10 years if the nominal price is $1.50, and the inflation rate is 4%?

$1.01

What is the prepaid interest if the loan principal is $350 with .34 points?

$1.19

What is the nominal price of an apple in 10 years if the real price is $1, and the inflation rate is 3%

$1.34

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 7%.

$10,714.29

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate 13.6%. One annuity pays $9700 on the first day of each year for 36 years. How much does the second investments pay each year for 36 years if it pays at the end of each year?

$11,019.20

If you invest $200 and earn a rate of return of 10%, how much money will you have in 1 years?

$220

How much money will be in a savings account in 10 years if $1,000 is deposited today and it earns 8% compounded quarterly?

$2208.04

An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 5 years. The marginal tax rate is 20%. The investor expects that the terminal value for the investment is $30,000 at the end of 6 years.(a 6-year project) What is the after-tax terminal value of this investment if the initial cost is $80,000

$24,000

Assume that the terminal value of an investment is $25,000. This investment has a cost of $45,000 with a marginal tax rate of 15%. This purchase has an annual depreciation of $3,500. What is the after-tax terminal value after 7 years?

$24,325

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the beginning of each month for the next 35 years? Assume that your savings account pays 8% compounded monthly

$248,030.9

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 3%?

$25000

Suppose you plan to replace a truck in 10 years and it will cost you $35,000. How much money would you need to put into your savings account at the end of the next 10 years to achieve this goal if the interest rate is 7%?

$2533

What is the nominal price of a tractor in 7 years if the real price is $200,00 and the inflation rate is 4%

$263,186.36

How much is an oil well worth today if it will pay royalties of $25,000 per year at the end of the next 12 years and will be sold for $250,000 at the end of the 12th year? Assume that the interest rate is 8% compounded annually.

$287,680.39 Calculation: N: 12 %: 8 PV:? PMT: 25000 FV:250000

What is the present value of $750 received 10 years from now if the interest rate compounded annually is 10%?

$289

How much money would you have in your bank account in 13 years if $800 is deposited at the end of the year for each of the next 13 years? Suppose that savings account pays 16% compounded annually.

$29,428.96

Suppose you are considering the purchase of a special livestock trailer for $15,000. It can be financed over 5 years with no down payment. Calculate the monthly debt payments if the annual interest rate is 6% compounded monthly and the payments are uniform (equal monthly payments including principal and interest)

$290

Suppose you are considering the purchase of a special livestock trailer for $15,000. It can be financed over five years with no down payment. Calculate the monthly debt payments if the annual interest rate is 6% compounded monthly and the payments are uniform (equal monthly payments including principal and interest).

$290

What is the prepaid interest if the loan principal is $575 with .55 points?

$3.16

What is the NPV of an investment that costs $175 promises to pay $250 in two years and the rate of return on comparable investments is 10%

$31.61

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate IS 11.6%. ONE ANNUITY PAYS $3900 ON THE FIRST DAY OF EACH YEAR FOR 28 YEARS. HOW MUCH DOES THE SECOND INVESTMENT PAY EACH YEAR for 18 years if it pays at the end of each year?

$4,352.40

Jaime and Tyrion purchased a new combine for $56,000. Assume a 7-year useful life and no salvage value. Calculate the depreciation for Year 7 using the double-declining balance.

$7,437

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate is 8.5%. one annuity pays $7300 on the first day of each year for 18 years. How much ...........?

$7,920.50

You are analyzing a project and have prepared the following data (assume the discount rate is 8.5%): Year Cashflow 0 -169000 1 46200 2 87300 3 41000 4 39000 (i) Based on the net present value of _____ for this project, you should _____ the project

$7,978.72; accept

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over five years. Calculate the monthly debt payments if the annual interest rate is 3% compounded monthly ad the payments are uniform.

$718.75

Jaime and Tryion purchased a new combine for $56,000. Assume a 7-year useful life and no salvage value. Calculate the depreciation for year 7 using the straight-line method

$8,000

Jamie and Tryion purchased a new combine for $56,000. Assume a 7- yea useful life and no salvage value. Calculate the depreciation for year 7 using the straight-line method.

$8,000

Suppose you can put your money in a savings account that pays 7%, compounded annually. How much money would you have in your savings account in 27 years if you invested $1,350 today?

$8,389

$863,462.39 Calculation: N:48 %:2 PV:? PMT: 25000 FV: 250000

The purchase price on a piece of land is $600. The marginal tax rate is 7% and the nominal terminal value is $884. There is an inflation rate of 3% and a growth rate of 2%. What is the nominal after-tax terminal value?

$864.12

Suppose that the inflation rate is 2% and the real terminal value of an investment is expected to be $82,500 in 4 years. Calculate the nominal terminal value of the investment at the end of year 4.

$89,301

Consider a bond with a Par value of $1,000. It pays a coupon of 12% and the coupon is paid semiannually . It matures in 5 years. Calculate the value of the bond if the market rate is 15%.

$897.04

Consider a bond with a par value of $1,000. It pays a coupon of 12% and the coupon is paid semiannually. it matures in 5 years. Calculate the market value of the bond if the market rate is 15%

$897.04

Suppose you buy a tractor for $45,000 and sell it for $5,000 in 7 years. What is the annualized cost ( capital recovery) if interest rates are 12%?

$9,365

Calculating annual Depreciation for capital budgeting using straight-line depreciation, one should use the following formula:

(Cost Basis)/Depreciable Life

Given the following information: The rate of return on assets (Ra) .16 The cost of debt (i) .05 The standard Deviation of Ra (σ) .09 The Tax Rate (t) .25 Calculate the difference between the expected rate of return to equity if leverage increased from 0.5 to 2.

.12374

The rate of return on assets (Ra) .16 The cost of debt (i) .05 The standard Deviation of Ra (σ) .09 The Tax Rate (t) .25

.16875

The rate of return on assets (Ra) .12 The cost of debt (i) .03 The standard Deviation of Ra (σ) .07 The Tax Rate (t) .20 Calculate the coefficient of variation of the expected rate of return to equity and risk if leverage is 3.5.

.72414

The yield on a bond is 6% and inflation is expected to be 3%. Calculate the real interest rate on the bond.

2.91%

How many years would it take before you had $484,012 in your bank account if you deposited $40,000 today in a bank that pays 12% interest annually?

What is the yield on an investment that costs $115 and promises $200 in two years?

31.9%

What is the yield on an investment that costs $115, and promises to pay $200 in two years?

31.9%

The yield on bond is 8% and the inflation is expected to be 3% What's the real interest rate on the bond?

4.85%

Maslow identified ________ ordered goals that related to an individual's most basic needs.

Given the following information: Nom initial cost= $30,000 Nom Before-tax Net Ret= $4,000 Marginal tax rate= 15% Required rate of return= 10% real terminal value= $20,000 Investment life= 8 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 10 years and the inflation rate is 4% 1. What is the nominal terminal value? 2. What is the annual depreciation expense? 3. What is the nominal after-tax terminal value?

1. $0 2. $2,000 3. $2,000

Suppose you invest $100 today, your return for the year is $10, and your tax rate is 20% 1. What is your before tax rate of return? 2. How much money did you earn after taxes? 3. What is your after-tax rate of return? 4. If your before tax rate of return was 10% and your marginal tax rate was 20%, calculate the after-tax rate of return?

1. 10% 2. $8 3. 8% 4. 8%

Given the following information: Nom initial cost= $80,000 Nom Before-tax Net Ret= $14,000 Marginal tax rate= 20% Required rate of return= 13% real terminal value= $60,000 Investment life= 3 years Inflation rate= 4% Risk premium= 4% Suppose that IRS will allow the investor to depreciate the investment using straight-line over 12 years. 1. What is the after-tax, risk adjusted discount rate? 2. What is the nominal after-tax net return at the end of year 2? 3. What is the annual tax savings? 4. What is the nominal after-tax terminal value? 5. What is the present value of the nominal after-tax terminal value? 6. What is the NPV of this investment?

1. 13.2% 2. $12,113.92 3. $1,000 4. $65,193.47 5. $51,831.62 6. -$2,863

Suppose that the after-tax risk-adjusted discount rate is 10.14%. The inflation rate is expected to be 8.00%. What is the real discount rate?

1.98%

Calculate the after-tax discount rate if the before tax discount rate is 15% and the marginal tax rate is 25%.

11.25%

What interest rate would a bank have to pay on a $10,000 deposit if you wanted to withdraw $96,463 from your bank account in 20 years? Assuming interest is compounded yearly.

12%

Calculate the after-tax discount rate if the before tax discount rate is 20% and the marginal tax rate is 30%

14%

Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid monthly. It matures in 10 years. Calculate the annual yield on the bond if the price of the bond is $892.66.

14%

A farmer requires a pre-tax rate of return 15%, there is a marginal tax rate of 23%, and there is a risk premium of 4%. What is the discount rate?

14.63%

What is the rate of return on an investment that costs $100 and promises to return $115 in one year?

15%

What is the rate of return on an investment that costs $100 and promises to return $115 in one years?

15%

Currently, among lenders, ______________ have the largest market share of total farm debt.

Commercial Banks

The life cycle effect uses information about past, present, and expected business performance comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions.

The theory of accounting is the concern with how individuals and firms allocate resources through time

We put $100 into an account that pays 10% compounded quarterly. How much will we have after 5 years?

FV = $100 (1+.025)^20 = $163.86

FUTURE VALUE OF LUMP SUM: You invest $300 in an account earning 11% interest per year. How much will you have in 6 years if things go according to plan?

FV= $561.12 (N=6, I/Y= 11, PV= -300, PMT=0)

A decrease in leverage will increase business risk.

False

Leverage helps decreases financial risk.

False

Marketing risk responses do not include inventory management and forward and futures contracts.

False

Net Revenue is equal to operating revenue plus operating expense.

False

Risk Aversion means the subjective tendency of investors to seek out unnecessary risk.

False

Suppose an investment has a life of 5 years, an after-tax discount rate of 12%, and tax savings from depreciation of 1,500 per year. The present value of tax savings from depreciation is $8,400.

False

The price of a bond goes down as interest rates go down.

False

The tax savings from depreciation is subtracted from the cash flows when calculating the NPV using the component method.

False

There are 2 primary taxes, which are:

Federal Income Tax and Self-employment Tax

Which of the following is not considered a source of liquidity?

All are sources of liquidity

The investment decisions process includes

All of the above

How can one reduce risk in production decisions?

All of the answers are correct

What does MARCS stand for?

Modified Accelerated Cost Recovery System

Collecting relevant information is important in capital budgeting. Which of the following is least important?

Name of your Bank

Bonds promises a fixed period payment and returns principal at maturity.

True

If financing terms are met, then the investment is judged financially feasible.

True

Income generating, cost reduction, and maintenance and replacement, are categories of alternative investments

True

Securities give you the title to common stock and treasure bonds.

True

The increase in required returns that compensates the individual for bearing the risk is called a risk premium.

True

Uncertainty in marketing decisions depends on the price of outputs and advertising and market strategies of competitors.

True

Which of the following is not considered a source of liquidity?

all are sources of liquidity

Which of the followings is not considered as a source of risk?

all are sources of risk

Simple Rate-of-Return (SRR) is the rate-of-return expresses the ________ profits generated each year by an investment as a percent of either the original or the average investment over the investment's expected life.

average

A/an _________ is generally a security that promises a fixed periodic payment.

bond

__________ : Unused borrowing capacity that is available for liquidity purposes.

credit reserve

Which of the following does not increase a firm's average after-tax profitability?

crop insurance

Which is not considered as depreciable assets?

crops

The interest rate that measures the true interest rate when compounding occurs more frequently than once a year is called the: a. annual percentage rate b. compound rate of interest c. stated rate of interest d. effective annual rate

The time value concept/calculation used in amortizing a loan is a. future value of a dollar b. future value of an annuity c. present value of a dollar d. present value of an annuity

Sensitivity analysis helps you determine the:

degree to which the net present value reacts to changes in a single variable.

A decrease in leverage will lead to greater risk

false

Annual Depreciation (D) is multiplied by (1-marginal tax rate) to get the tax savings from depreciation

false

As long as an investment is profitable we should always accept it.

false

Leverage that is greater than 1 is considered favorable.

false

Maintenance and Replacement," "Bond Selection," and "Income Generating" are categories of alternative investments.

false

Points are the interest rate stated on the note.

false

Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets, leverage goes down.

false

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the Correlation between two investments is equal to .5, it is possible to combine the two investments in a manner that will eliminate all risk.

false

The rate of return on equity is equal to the income before interest and taxes divided by assets.

false

Financial _____ is the amount of debt used to finance a firm's assets.

leverage

Suppose an agricultural firm make a profit before interest and taxes. Which of the following does not have a claim on the profits?

neighbor

The results of goal identification are an improved understanding of a business's __________.

past performance

_____ is a method of computing interest, with which, interest is calculated by multiplying the principal outstanding by the contractual rate for the period in question.

remaining balance method

Investment Analysis is a producer for evaluating the effects of investment choices on a business's profitability, ______, and liquidity.

risk

To ascertain whether the accuracy of the variable cost estimate for a project will have much effect on the final outcome of the project, you should probably conduct _____ analysis.

sensitivity

Accumulated depreciation is

sume of depreciation claimed on tax returns

Highly non liquid assets cannot be readily converted to cash without a substantial lose in value to the firm

true

It is best to layout cash flows using a time line

true

The Net Cash Flow is calculated as Cash Revenues minus Cash Expenses minus the marginal tax rate times the taxable income.

true

The nominal interest rate accounts for the time value of money and the loss of value due to inflation

true

The price of bond and the interest rate are inversely related.

true

Which of the followings is not considered as a source of liquidity?

unused land

If you ca near 8% on your money, how much should you pay today for an investment that promises to pay $225 in three years.

$178.61

An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 10 years. The marginal tax rate will be 10% over the next 5 years & it will be 20% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $40,000 at the end of 4 years.(a 4-year project) What is the after-tax terminal value of this investment if the initial cost is $60,000?

$39600

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 11.60% One annuity pays $3,900 on the first day of each year for 18 years. How much does the second investment pay each year for 18 years if it pays at the end of each year?

$4,352.40

A farmer bought a tractor costing $200,000, with a useful life of 10 years and a projected salvage value of $18,000. Calculate the annual depreciation charge using the straight-line method

$18,200

A farmer is taking out a 20-year loan of $30,000 with equal principal annual payments and an interest rate of 12%. Growth rate of farm returns are expected to be 4% per year. What is the total payment in the 5th year?

$4,380

Suppose you are considering the purchase of a new truck for $55,000. It can be financed over 10 years. Calculate the quarterly payments if the annual interest rate is 6% compounded quarterly and the payments are uniform (equal quarterly payments including principal and interest).

$1838.49

What would you be willing to pay for an annuity that paid you $200 at the end of each of the next 30 years? Assume savings account pays 10% compounded annually.

$1885

Suppose that the initial cost of an investment is $75,000, the present value of tax saving from depreciation is $2,000, and the present value after tax terminal value is $30,000. It is expected that an investment will increase yield and thus operating receipts by $15,000 per year but it will cost $5,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 12% while the marginal tax rate over the next 5 years is 20%. What is the break-even price of operating receipt?

$19,059

Suppose that the marginal tax rate is 15% If a farmer decides to purchase a new tractor, it will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchase. the current operating expenses are $1,200. What is the annual after-tax net return generated by this investment for each year?

$4,560

Suppose you have been hired by Aggie-Business. They are willing to pay you a signing bonus of $2,000 per year starting in one year for each of the next seven years (7-year annuity) or a lump-sum bonus today of $11,000. Suppose you take the $11,000 today and put this money in a bank account paying 6% interest. Calculate how much money you have in your bank account at the end of 10 years.

$19,699

Suppose you have the opportunity to purchase a 7-year annuity that pays you $2,000 per year starting in one year for each of the next seven years and you can purchase the annuity for $11,000. Suppose you take the $11,000 today and put this money in a bank account paying 6% interest. Calculate how much money you have in your bank account at the end of 10 years.

$19,699

Suppose that the marginal tax rate is 20%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchase, the current operating expenses are $1,200. What is the annual after-tax net return generated by this investment for each year?

$4,560 Calculation: 6800-1100-(5700*.2)

As of 2015, farms were taxed at 10 percent for income up to $46,000; at 24 percent for income ranging from $46,000 to $66,000; at 30 percent for taxable income $66,000 to $82,000; at 45 percent for income from $82,000 to $213,000, and so on. Suppose that you have revenues of $164,700 and operating expense of $65,700. How much tax is paid on the first $46,000 of taxable income?

$4,600

An investment with a net present value of -$40,000 will have a life of 15 years. There is a real discount rate of 8.5%, a growth rate of 3%, and a marginal tax rate of 15%. What is the annuity equivalent?

$4,816

Stephen deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Stephen have on deposit at the end of the 15 years? Pick the closest answer.

$50,258

What is the present value of $1,250 that is to be received 7 years form today and interest rates are 14% compounded annually?

$500

Assume that the terminal value of an investment is $55,000. This purchase has a cost of $75,000 with a marginal tax rate of 20%. This investment has an annual depreciation of $2,500. What is the present value of the after-tax value after 10 years?

$54,000

How much money will be in a savings account in 20 years if $750 is deposited today and it earns 10% compounded quarterly?

$5407.18

Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $8,000 per year but it will cost $2,000 a year for maintenance. What is the annual prer-tax net return generated by this investment for each year?

$6,000

Suppose that the marginal tax rate is 20% If a farmer decides to purchase a new tractor. it will increase the operating receipts $7,500 per year but it will cost $1,500 a year for maintenance. What is the annual pre-tax net return generated by the investment for each year?

$6,000

Suppose that the inflation rate is 5% and the real terminal value of an investment is expected to be $50,000 in 5 years. Calculate the nominal terminal value of the investment at the end of year 5

$63,814

Assume that the marginal tax rate is 15%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 10 years if the initial cost of an investment is $42,000. What is the tax saving value for each year?

$630

Assume that the marginal tax rate is 15%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 10 years. If the initial cost of an investment is $42,000, What is the tax saving value for each year?

$630

When you retire, you want to have $875,000 saved. If you plan to retire in 35 years, and you can receive 7% interest annually on a savings account, what is the fixed amount you have to save each year?

$6330

If the real land price is $600 in year three and the inflation rate is 3%. The marginal tax rate is 6% and the growth rate is 2%. Calculate the nominal terminal value for the third year?

$655.63

Assume that the marginal tax rate is 20%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 15 years. If the initial cost of an investment is $50,000. What is the tax saving value for each year?

$666....

Assume that the marginal tax rate is 20%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 15 years if the initial cost of an investment is $50,000. What is the tax saving value for each year?

$666.67

At the beginning of the year, Joseph Farmer purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment is $25,000. The equipment is expected to be used for 4 years and then sold for $4,000. depreciation expense to be reported for the second year using the double-declining balance method is close to:

$7,250X

Given the following loan information: Annual loan payment = $47,100 Number of remaining periods = 6 Interest rate = 12% What is the book value of the loan?

$193,647.28

Given the following loan information: Annual loan payment = $47,100 Number of remaining periods = 6 Interest rate = 12% What is the book value of the loan?

$193,647.28

If you invest $175 and earn a rate of return of 11% how much money will you have in one year?

$194.25

If you invest $175 and earn a rate of return of 11%, how much money will you have in 1 years?

$194.25

If you invest $175 and earn a rate of return of 11%, how much money will you have in one year?

$194.25

A farmer is taking out a 10-year loan of $25,000 with equal principal annual payments with an interest rate 12%. Inflation rate is expected to be 4% per year. What is the interest payment in the third year?

$2,400

Tyler would like to send his parents on a cruise for their 50th wedding anniversary. He expects the cruise will cost $15,000 and he has 5 years to accumulate this money. How much must Lance deposit at the end of each year in an account paying 10 percent interest in order to have enough money to send his parents on the cruise? Pick the closest answer.

$2,457 Solution: FV 15,000 PV 0 N 5 I/Y 10 → PMT = -$2,456.96

$2,533

Suppose you are going to purchase an investment that costs $40,000 with a life of three years. You anticipated that the marginal tax rate will be 20% over the next three years. The IRS will allow you to depreciate this investment over 7 years. you require at least a 15% pretax rate of return on capital. What is the present value of tax savings from depreciation?

$2,745

Suppose you plan to replace a truck in 7 years and it will cost you $27,000. How much money would you need to put into your saving account at the end of the next 7 years to achieve this goal if the interest rate is 10%

$2,846

Suppose you plan to replace a truck in 7 years and it will cost you $27,000. How much money would you need to put into your savings account at the end of the next 7 years to achieve this goal if the interest rate is 10%?

$2,846

$2,880

What would you be willing to pay for an annuity that paid you $575 at the end of each of the next 7 years? Assume savings account pays 8% compounded annually.

$2,994

Consider a band with a par value of $2,000. it pays a coupon of 12% and the coupon is paid monthly. It matures in 12 years. What is the coupon payment?

$20

Consider a bond with a par value of $2,000. It pays a coupon of 12% and the coupon is paid monthly. It matures in 12 years. What is the coupon payment.

$20

How much would you have to set aside today to have $20,000 five years from now if the current rate is 8%?

$20,000 (Pg. 8)

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded annually

$20,395.49

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded annually.

$20,395.49

Calculating the present value of a retirement fund if you out $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded annually.

$20,395.49

Given the following information: Initial loan amount is $52,000. The loan will be fully amortized in 3 years at 10%. Marginal tax rate is 15%. What is the value of loan payment per period?

$20,909.97

Given the following information: -initial loan amount $52,000 -the loan will be fully amortized in 3 years at 10% -marginal tax rate is 15% What is the value of a loan payment per period?

$20,909.97

Suppose that the inflation rate is 2.5% and the real terminal value of an investment is expected to be $20,000 in 2 years. Calculate the nominal terminal value of the investment at the end of year 2.

$21,013

An investor wants to do a capital budgeting for his new investment project. He has the following info: The marginal tax rate will be 15% over the next 5 years and it will be 10% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $20,000 at the end of 4 years. What is the after-tax terminal value of this investment if the initial cost is $50,000?

$21,500

An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 10 years. The marginal tax rate will be 15% over the next 5 years & it will be 10% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $20,000 at the end of 4 years.(a 4-year project) What is the after-tax terminal value of this investment if the initial cost is $50,000?

$21,500

What is the future value of $1,000 today if it draws interest at 8% compounded annually for 10 years?

$2159

$248,030.9

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $66,000. The loan will be fully amortized in 3 years at 8%. Marginal tax rate is 15%. What is the value of loan payment per period (X)?

$25,610.21

Suppose you are considering the purchase of a special livestock trailer for$15,000. It can be financed over five years with no down payments. Calculate the monthly debt payments if the annual interest rate is 6% compounded monthly and the payments are uniform.

$290

Suppose that a $1,100/ acre loan is expected to be fully amortized at 23% over 9 years. Calculate the amount of loan payment per period.

$299

Suppose you are going to purchase an investment that costs $35,000 with a life of 3 years. You anticipating that the marginal tax rate will be 25% over the next three years. The IRS will allow you to depreciate this investment over 7 years. You require at least a 15% pretax rate of return on capital. What is the present value of tax savings from depreciation?

$3,041

Suppose you plan to replace a tractor in 12 years and it will cost $75,000. How much money would you need to put into your savings account at the end of the next 12 years to achieve this goal if the interest rate is 12%?

$3,108

How much money would you have in your bank account in 10 years if $200 is deposited at the end of the year for each of the next 10 years? Suppose that savings account pays 10% compounded annually

$3,187.48

How much money would you have in your bank account in 10 years if $200 is deposited at the end of the years for each of the next 10 years? Suppose that savings account pays 10% compounded annually.

$3,187.48

How much money would you have in your bank account in 10 years if the $200 is deposited at the end of the year for each of the next 10 years? Suppose that savings account pays 10% compounded annually

$3,187.48

$3,333.33

An investor wants to do capital budgeting for his new investment project: IRS depreciate using straight-line over 10 years. marginal tax rate will be 20% over next 5 years and it will be 15% from the 6th to the 10th year. Investor expects terminal value for investment is $40,000 at the end of 6 years. What is the after-tax terminal value of this investment value of this investment if the initial cost is $60,000?

$37,606

Consider a bond with a par value of $1,500. It pays a coupon of 10% (annual) and the coupon is paid quarterly. It matures in 8 years. What is the coupon payment?

$37.50 Calculation: 1500*2.5%=3750

An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 10 years. The marginal tax rate will be 20% over the next 5 years & it will be 10% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $40,000 at the end of 6 years.(a 6-year project) What is the after-tax terminal value of this investment if the initial cost is $60,000?

$38,400

What is the nominal price of a truck in 15 years if the real price is $25,000 and the inflation is 3%

$38,949.19

Assume that the real net return of an investment is $35 per acre with a growth rate of 3% each year and an inflation rate of 4%. What is the real net return in the 3rd year?

$38.25

An investor wants to do capital budgeting for his new investment project: IRS depreciate using straight-line over 10 years. marginal tax rate will be 20% over next 5 years and it will be 15% from the 6th to the 10th year. Investor expects terminal value for investment is $40,000 at the end of 4 years. What is the after-tax terminal value of this investment value of this investment if the initial cost is $60,000?

$39,200

An investor wants to do capital budgeting for his new investment project: IRS depreciate using straight-line over 10 years. marginal tax rate will be 10% over next 5 years and it will be 20% from the 6th to the 10th year. Investor expects terminal value for investment is $40,000 at the end of 4 years. What is the after-tax terminal value of this investment value of this investment if the initial cost is $60,000?

$39,600

A machine is purchased for $12,000 and the marginal tax rate is 20%. What is the taxable depreciation in the 10th year if the depreciable like is 12 years, the life of the machinery is 14 years and straight-line depreciation is used?

$1,0.....

A machine is purchased for $12,000 and the marginal tax rate us 20%. What is the taxable depreciation in the 10th yeas if the depreciable life is 12 years, the life of the machinery is 24 years and straight- line depreciation is used?

$1,000

A machine purchased for $12,000 and the marginal tax rate is 20%. What is the taxable depreciation in the 10th year if the depreciable life is 12 years, the life of the machinery is 14 years and the straight-line depreciation is used?

$1,000

A machine is purchased for $12,000 and the marginal tax rate is 20%. What is the taxable depreciation in the 10th year if the depreciable life is 12 years, the life of the machinery is 14 years and straight-line depreciation is used?

$1,000 Response Feedback: Solution: 12000/10 - 200

Consider a bond with a Par Value of $1,000. It pays a coupon of 10% and the coupon is paid quarterly. It matures in 5 years. The market rate is 12%. Calculate the book value of the bond.

$1,000.00 Calculation: 20 N, 2.5%, FV = 1,000, PMT = 25, CPT PV = $1,000

What would you be willing to pay for an annuity that paid you $150 at the end of each of the next 15 years? Assume savings account pays 12% compounded annually.

$1,022

What would you be willing to pay for an annuity that paid you $175 at the end of the next 20 years? Assume savings account pays 8% compounded annually?

$1,718

$1,838.49

The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5% on these funds. How much must the company set aside each year for this purpose?

$1,852,617.25

A five year project if undertaken will require an initial investment of $500,000. the discount rate is 5% and the expected end-of- year cash flows are: Year1: $120,000 2: $120,000 3: $150,000 4. $150,000 5. $180,000

$117,145

A five-year project, if undertaken, will require an initial investment of $500,000. The discount rate is 5% and The expected end-of-year cash flows are: year cashflow 1 $120000 2 120000 3 150000 4 150000 5 180000 The NPV is:

$117,145

If it costs $80,000 to put a student through Texas A&M today, how much will it cost in 8 years if costs increase at an annual rate of 5 percent?

$118,196

A farmer purchased a module builder for $50,000. The bank is willing to loan him $37,000. The terminal value of this investment is $15,000. There is a marginal tax rate of 25%, a growth rate of 2%, and a discount rate of 10%. What is the after tax terminal value of this investment?

$14,500

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 5%?

$15000

Suppose Mr. Agirich of Agirich Farms has made a good profit on his cotton this year and wants to put $10,000 in a savings account to pay for his son's education. The bank pays 4% compounded annually on money in savings accounts. How much will Mr. Agirich have in his savings account in thirteen years if $10,000 is put in the account today?

$16,650.74

Assume that the nominal after-tax net return for year 1: $62, year 2: $65, year 3: $68. The after tax risk adjusted discount rate is 10%, the growth rate is 3%, and the inflation rate is 4%. What is the present value of the after-tax net return?

$161.17

Consider a bond with a par value of $1,000, it pays a coupon of 12% and the coupon is paid monthly. it matures in 10 years. Calculate the npv if the bond yield on the bond is 11% and the price of the bond is $892.66

$167.84

Consider a bond with a par value of $1,125. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 10 years. What is the NPV if the yield on the bond is 11% and the price of the bond is $892.66

$167.84

If you invest $150 and earn a rate of return of 12% how much money will you have in one year?

$168

If you invest $150 and earn a rate of return of 12%, how much money will you have in 1 year?

$168

If you invest $150 and earn a rate of return of 12%, how much money will you have in one year?

$168

A bank has agreed to lend you $127,800 for a home loan. The loan will be fully amortized over 57 years at 12.98%, with .13 points. The loan payments will be monthly. The closing cost is estimated to be $2,168.

$169.18

A farmer is taking out a 10-year loan of $25,000 with equal principal annual payments with an interest rate 12%. Inflation rate is expected to be 4% per year. What is the loan balance in the third year?

$17,500

$718.75 Calculation: N: 60 %: .25 PV: 40,000 PMT: 718.75 FV: 0

Consider a bond with a Par Value of $1,000. It pays a coupon of a 8% and the coupon is paid semiannually. It matures in 10 years. Calculate the market value of the bond if the market value is 12%

$770.60

Consider a bond with a par value of $1,000. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 10 years. Calculate the market value of the bond if the market rate is 12%

$770.60

Consider a bond with a Par Value of $1,000. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 10 years. Calculate the market value of the bond if the market rate is 12%.

$770.60 Calculation: 20 N, 6%, FV = 1,000, PMT = 40, CPT PV = $770.60

How much money would you have in your bank account in 13 years if $1,000 is deposited semiannually at the end of each semiannual over the next 13 years? Suppose that savings account pays 16% compounded semiannually.

$79,954.42

A farmer is considering the purchase of additional farmland. Given the present value of after-tax net return of $32.55, a marginal tax rate of 16%, a terminal value of $679.85, and an after-tax discount rate of 19.80%. This farmer is planning on selling the land in 14 years. What is the maximum price this farmer should be willing to pay for an acre of land?

$79.10

Assume that the real net return in the third year is $75 with a growth rate of 3%, inflation rate of 2%, and a tax rate of 4%. What is the nominal net return in the third year?

$79.59

If the real land price is $650 in year five and the inflation rate is 4%. The marginal tax rate is 8% and the growth rate is 3%. Calculate the nominal terminal value for the fifth year?

$790.82

Suppose you buy a truck for $37,000 and sell it for $5,700 in 5 years. What is the annualized cost (capital recovery) if interest rates are 7%?

$8,033

As of 2015, ranches were taxed at 15 percent for income up to $54,000; at 23 percent for income ranging from $54,000 to $71,000; at 28 percent for taxable income $71,000 to $89,000; at 41 percent for income from $89,000 to $320,000, and so on. Suppose that you have revenues of $221,100 and operating expense of $69,800. How much tax is paid on the first $54,000 of taxable income?

$8,100

Jamie and Tryion purchased a new combine for $56,000. Assume a 7- yea useful life and no salvage value. Calculate the depreciation for year 7 using the double-declining balance.

$8,163X

When you retire, you want to have a million dollars saved. If you plan to retire in 40 years, and you can receive 5% interest annually on a savings account, what is the fixed amount you have to save each year?

$8,278 Calculation: N=40 %=5 PV=0 PMT=? FV=1,000,000

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate is 16.4%. One annuity pays $7700 on the first day of each year for 11 years. How much does the second investment pay each year for 11 years at the end of each year?

$8,962.80

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 16.40% One annuity pays $7,700 on the first day of each year for 11 years. How much does the second investment pay each year for 11 years if it pays at the end of each year?

$8,962.80

$800

Peter has just accepted a job as a stockbroker. He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. His gross pay is received at the end of each year. Calculate the present value of these cash flows, if they are discounted at 4%. Pick the closest answer.

$81,517.10 Response Feedback: Solution: FV 35,000 N 1 I/Y 4 → PV = $33,653.85 FV 21,000 N 2 I/Y 4 → PV = $19,415.68 FV 32,000 N 3 I/Y 4 → PV = $28,447.88 $81,517.41

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of each quarter for the next 35 years? Assume that your savings account pays 8% compounded quarterly

$82,030.04

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$82,030.04

$82,030.04 Calculation: N: 140 %: 2 PV:? PMT: 1750 FV: 0

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$82,030.40

Calculated the present value of a retirement fund if you put $1,750 in your savings account at the end of each of the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$82.030.04

Suppose that the initial cost of an investment is $35,000 the present value of tax saving from depreciation is $1,500 and the present value after tax terminal value is $25,000. It is expected that an investment will increase yield and thus operating receipts by $20,000 per year but it will cost $4,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 10% while the marginal tax rate over the next four years is 25%. What is the break-even price of operating receipt?

$7,390

Suppose that the initial cost of an investment is $35,000, the present value of tax saving from depreciation is $1,500, and the present value after tax terminal value is $25,000. It is expected that an investment will increase yield and thus operating receipts by $20,000 per year but it will cost $4,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 10% while the marginal tax rate over the next four years is 25%. What is the break-even price of operating receipt?

$7,390

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 8.50% One annuity pays $7,300 on the first day of each year for 18 years. How much does the second investment pay each year for 18 years if it pays at the end of each year?

$7,920.50

You are analyzing a project and have prepared the following data (assume the discount rate is 8.5%): 0 -$169,000 1 $46,200 2 $87,300 3 $41,000 4 $39,000 (i) Based on the net present value of _____ for this project, you should _____ the project.

$7,978.72; accept Response Feedback: Solution: NPV(8.5,-169000,{46200,87300,41000,39000})

A farmer expects irrigation system will increase real operating receipts by $20,000 per year but will also increase real operating by $8,000 Suppose that the inflation rate is 4% and he marginal tax rate is 20% 1. What is the nominal net return at the end of year 2 2. Calculate the nominal after-tax net return at the end of year 2

1. $12,972 2. $14,400

A farmer expects irrigation system will increase real operating receipts by $20,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 4% and the marginal tax rate is 20% 1. What is the nominal net return at the end of year 2? 2. Calculate the nominal after-tax net return at the end of year 2.

1. $12,972 2. $17,280

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over 5 years. Calculate the monthly interest rates (yield) if the monthly payments are $700.00

1.94%

Suppose you are considering the purchase of a new Tundra truck for $45,000. You are required to put $5,000 down and need to finance $40,000. It can be financed over five years. Calculated the monthly interest rates (yield) if the monthly payments are $700,000

1.94%

Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid semiannually. It matures in 10 years. Calculate the annual yield on the bond if the price of the bond is $1,124.62.

10% Calculation: 20 N, FV = 1,000, PMT = 60, PV = -1,124.62, CPT i% = 5%. Thus, the yield = 2*5% = 10%

A farmer is considering the purchase of additional land to expand operations. The marginal tax rate is 20% And He requires at least a 10% pre-tax, risk free return on capital and a 3% risk premium on projects on comparable risk. What is the after-tax, risk adjusted discount rate? r=[rbt +PREM](1-m)

10.4%

A farmer requires a pre-tax rate of return 10%, there is a marginal tax rate of 20%, and there is a risk premium of 3%. What is the discount rate?

10.4%

Given the following information: Before-tax, risk free discount rate = 10%; Risk premium = 3% Marginal tax rate = 20% What is the after-tax, risk adjusted discount rate?

10.4%

A farmer requires a pre-tax rate of return 12%, there is a marginal tax rate of 25%, and there is a risk premium of 2%. What is the discount rate?

10.5%

A bank has agreed to lend you $840,100 for a home loan. The loan will be fully amortized over 52 years at 10.61%, with .3 points. The loan payments will be monthly. The closing cost is estimated to be $4,542.

10.7015%

You are analyzing a project and have prepared the following data: 0 -$169,000 1 $46,200 2 $87,300 3 $41,000 4 $39,000 (i) Based on the internal rate of return of _____ for this project, you should _____ the project.

10.75%; accept Response Feedback: Solution: IRR(-169000,{46200,87300,41000,39000})

Given the following information: Required rate of return= 11% Risk premium= 2.5% Marginal tax rate= 15% r=[r^bt= PREM](1-m) What is the after-tax adjusted discount rate?

11.48%

Typically how long is the normal course of business for current assets?

12 months

Typically, how long is the normal course of business for current assets?

12 months

If a farmer is granted a loan that will be paid over 3 years of fully amortized quarterly payments and there is a contractual rate of 12%. What is the APR?

12%

If a farmer is granted a loan that will be paid over 4 years of fully amortized semiannual payments and there is a contractual rate of 12%. What is the APR?

12%

What interest rate would a bank have to pay on a $10,000 deposit if you wanted to withdraw $96,463 from your bank account in 20 years? Assuming that interest is compounded yearly.

12%

The real interest rate on a bond is 8% and the inflation is expected to be 4%. What is the nominal interest rate on the bond?

12.36%

Suppose that the marginal tax rate is 35%, before-tax nominal discount rate of 18.62%, risk premium of 6%, and expected inflation rate of 2%. What is the real discount rate?

13.73%

Given the following information: Profit Levels Probability of occurrence Optimistic: $683.00 0.1 Most Likely: $103 0.6 Pessimistic: -$519 0.3 Calculate the variance of the profit levels.

133,167.24

Consider a bond with a Par Value of $1,000. It pays a coupon of 12% and the coupon is paid quarterly. It matures in 10 years. Calculate the annual yield on the bond if the price of the bond is $845.87.

15%

A bank has agreed to lend you $53,000 for a home loan. The loan will be fully amortized over 39 years at 13.50%, with .44 points. The loan payments will be monthly. The closing cost is estimated to be $3,894 and you plan to refinance the mortgage in 8 years.

15.0708%

Given the following information: Before-tax, risk free discount rate = 15%; risk premium = 4% Marginal tax rate = 18% What is the after-tax, risk adjusted discount rate?

15.58%

Given the following information: Required rate of return= 15% Risk premium= 4% Marginal tax rate= 18% r=[r^bt= PREM](1-m) What is the after-tax adjusted discount rate?

15.58%

A farmer requires an after-tax risk adjusted discount rate of 18.25%. However, he expects that the inflation rate will be 2.00%. What is the real after-tax risk adjusted discount rate?

15.93%

If a farmer is granted a loan with a contractual rate of 16% and semiannual payments will be made for 3 years fully amortized. What is the effective rate?

16.64%

What is the rate of return on an investment that costs $150 and promise to return $175 in one year?

16.67%

What is the rate of return on an investment that costs $150 and promises to return $175 in one year.

16.67%

What is the rate of return on an investment that costs $150 and promises to return $175 in one year?

16.67%

How many years would it take before you had $151,467 in your bank account if you deposited $35,000 today in a bank that pays 9% interest annually?

What is the rate of return on an investment that costs $225 and promises to return $275 in one year?

22.22%

Given that the total farm assets is 278.48 and the total farm debt is 48.8, what is the value of the equity capital?

229.68

Given the total farm assets is 278.48 and the total farm debt is 48.8, what is the value of the equity capital?

229.68

Suppose a particular investment project will requires an initial cash outlay of $1,000,000 and will generate a cash inflow of $200,000 in each of the next five years. What is the project's IRR? Suppose a company's hurdle rate is 15%, should it accept the project?

23%; accept the project

Eddard and Robert annual payment to iron bank. principle loan balance is $22500 interest is 8% estimated accrued interest of the loan on 12/31/95

250X

Suppose that the firm CherryBlossom has an orchard they are willing to sell today. The net annual returns to the orchard are expected to be $50,000 per year for the next 20 years. At the end of 20 years, it is expected that the land will sell for $30,000. Calculate the Market Value of the orchard if the market rate of return on comparable investments is 16%.

297,983

Given the following information: Before-tax, risk free discount rate = 13% After-tax, risk-adjusted discount rate = 12.8% Marginal tax rate = 20% What is the risk premium?

The yield on a bond is 8% and inflation is expected to be 4% calculate the real interest rate on the bond.

3.85%

What is the yield on an investment that costs $125, and promises to pay $275 in three years?

30.06%

As of 2007, ranchers were taxed at 10 percent for income up to $49,000; at 19 percent for income ranging from $49,000 to $66,000; at 26 percent for taxable income $66,000 to $88,000; at 39 percent for income from $88,000 to $103,000, and so on. There is a social security rate of 12.4% and a Medicare rate of 2.9%. Suppose that you have revenues of $156,100 and operating expense of $59,200. What total tax percent will be applied to the 19% tax bracket?

34.3%

Consider a bond with a Par Value of $1,000. It pays a coupon of 8% and the coupon is paid annually. It matures in 8 years. Calculate the yield on the bond if the price of the bond is $1,091.33.

6.5%

Consider a bond with a Pr Value of $1,000. it pays a coupon of 8% ad the coupon is paid annually. it matures in 8 Years. Calculate the yield on the bond if the price of the bond is $1,091.33

6.5%

Consider a bond with a par value of $1,000. it pays a coupon of 8% and the coupon is paid annually. it matures in 8 years. calculate the yield of the bond if the prices of the bond is $1,091.33

6.5%

Suppose that an after-tax risk-adjusted discount rate is 8.95%. The inflation rate is expected to be 2.00%. What is the real discount rate?

6.81%

An investment with a net present value of -$50,000 will have a life of 8 years. There is a real discount rate of 9%, a growth rate of 4%, and a marginal tax rate of 12%. What is the annuity equivalent?

$9,034

Suppose you buy a tractor for $45,000 and sell it for $5,000 in 7 years. What is the annualized cost (capital recovery) if interest rates are 12%?

$9,365

Suppose you buy a tractor for $45,000 and sell it for $5,000 in 7 years. What is the annualized cost (capital recovery) if interest rates are 12%?

$9,365 Calculation: Vo= -45000+5000(1+.12)-7 N=7 %=12 PV=-42,738.25 PMT=? FV=0

You are analyzing a project and have prepared the following data (assume the discount rate is 7.5%): Year Cash Flow 0 -87,000 1 12,000 2 24,000 3 36,000 4 48,000 (i) Based on the net present value of _____ for this project, you should _____ the project.

$9,851.78; accept

What would you be willing to pay for an annuity that paid you $250 at the end of each of the next 5 years? Assume savings account pays 12% compounded annually

$901

What would you be willing to pay for an annuity that paid you $250 at the end of each of the next 5 years? Assume savings account pays 12% compounded annually.

$901

What would you be willing to pay for an annuity that paid you $250 at the end of the next 5 years? Assume savings account pays 12% compounded annually.

$901

What would you be willing to pay for an annuity that paid you $250 at the end of the next 5 years? Assume savings account pays 12% compounded annually?

$901

A farmer borrowed money to purchase a tractor 5 years ago. The annual loan payment is $25,800, the interest rate is 22% and there are 8 years left on the loan. How much does the rancher still owe on the loan?

$93,377.10

The purchase price on a piece of land is $650. The marginal tax rate is 8% and the nominal terminal value is $967. There is an inflation rate of 4% and a growth rate of 3%What is the nominal after-tax terminal value?

$941.64

Consider a bond with a Par Value of $1,000 it pays a coupon of 7% and the coupon is paid monthly. It matures in 2 years. Calculate the NPV if the yield on the bond is 5% and the price of the bond is $1100

-$62.01

Consider a bond with a par value of $1,000. it pays a coupon of 7% and the coupon is paid monthly. It matures in 2 years. Calculate the npv if the yield on the bond is 5%and the price on the bond is $1,100

-$62.01

You are attempting to reconstruct a project analysis of a co-worker who was fired. You have found the following information: • The project life is 4 years. • The initial cost is $20,000. • In years 1, 2, 3 and 4 you will receive cash inflows of $6,000. • The appropriate discount rate is 10%. What is the NPV of the project?

-$980 Response Feedback: Solution: NPV(10,-20000,{6000,6000,6000,6000})

calculate the coefficient of variation : profit level- 683, 103, -519 ; prob. of occurence - .1, .6, .3

-14.2547

The rate of return on assets (Ra) .20 The cost of debt (i) .07 The standard Deviation of Ra (σ) .11 The Tax Rate (t) .35 Calculate the risk as defined by the standard deviation of the rate of return to equity if leverage is 2.5.

.25025

Eddard and Robert borrow and pay principal based on the cash available at the end of each month. interest rate on the operating line of credit was 8% over the entire time period. estimate the 12/31/95 accrued interest balance on the operating line of credit?

2,700X

The internal rate of return (IRR)

2. is the rate generated solely by the cash flows of an investment. 3. is the rate that causes the net present value of a project to exactly equal zero.

What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for six years?

0.57%

What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for six years?

0.57% Response Feedback: Solution: irr(-100000,{17000,17000,17000,17000,17000,17000})

Suppose and investment costs $10,000 with expected cash flows of $3,000 for 5 years. The discount rate is 15.2382%. The NPV is____ and the IRR is ______ for the project

0; 15.2383%

When solving for the future value of an amount deposited now, which one of the following factors would not be a part of the calculation?

1 divided by the sum of 1 plus the interest rate

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount $250,000 -the loan will be fully amortized in 3 years at 14% -marginal tax rate is 15% 1, What is the principal payment in the 1st year? 2. What is the principal payment in the 2nd year?

1 out of 2 1. $72,682.87 2. $65,910.60

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between investment A and investment B is greater than 0, it is possible to combine investment A and investment B in a way that will eliminate all risks.

FALSE

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between investments A and investment B is 1, risk averaging does not provide risk reduction, only diversification.

FALSE

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. Then a portfolio of the two investments dominates only investing in just the one investment with the highest variance.

FALSE

FUTURE VALUE OF AN ANNUITY: Suppose you put $100 into your account every year for 3 years (with the first deposit taking place at the end of the year), earning 7% interest. How much would you have at the end of 3 years?

FV= $321.49 (N=3, I/Y=7, PV=0, PMT= -100)

You already have $100,000 saved. You plan to make additional investments of $4,000 per year for the next 20 years (beginning at the end of the year.) Assuming your account generates an 8.5% return, how much will you have in 20 years?

FV= $704,713 (N=20, I/Y=8.5, PV=-100,000, PMT=-4,000)

What is the future value formula for a lump sum?

FV=PV*(1+Rate)^# of periods

What is the future value for funds with multiple compounding periods per year?

FV=PV*(1+Rate/M)^# of Periods * M M= the # of compounding periods per year

"Maintenance and Replacement," "Bond Selection," and "Income Generating" are categories of alternative investments.

False

A balance sheet can be used to measure the effects of the firm's financial performance for a year.

False

A decrease in leverage will lead to greater risk.

False

A futures contract is a contingent claim. It gives holders the right to buy or sell something at a specific period during a period of time.

False

A partial budget is a financial management tool used to project all costs and returns for an activity- such as livestock, grain or vegetable production.

False

A partial budget is a financial management tool used to project all costs and returns for an activity- such as livestock, grain, or vegetable production.

False

A primary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.

False

A pro-forma income statement compiles the net effect of revenue, expenses, nonfarm adjustments, and taxes.

False

A pro-forma income statement complies the net effect of revenue, expenses, confirm adjustments, and taxes

False

A pro-forma income statement complies the net effect of revenue, expenses, confirm adjustments, and taxes.

False

A risk-efficient set is constructed by selecting investments or combinations of investments that provide maximum risk for alternative levels of expected profits?

False

A risk-efficient set it constructed by selecting investments or combinations of investments that provide maximum risk for alternative levels of expected profits

False

Accounting Methods are used to evaluate the future directions of a firm.

False

Accounting methods are used to evaluate the future directions of a firm.

False

An Increase in debt-to-asset and interest expense-to-gross income ratios are a result of capital assets values and gross revenues increasing at a faster rate than debt and cost of debt

False

An increase in debt-to-asset and interest expense-to-gross income ratios are a result of capital asset values and gross revenues increasing at a faster rate than debt and cost of debt.

False

An increase in debt-to-asset and interest expense-to-gross income ratios are a result of capital asset values and gross revenues increasing at a faster rate than debt and costs of debt.

False

An increase in debt-to-asset and interest expense-to-gross income ratios are a result of capital asset values and gross revenues increasing at a later rate than debt and cost of debt.

False

An increase in financial risk decreases the need for liquidity.

False

An investment is unacceptable if IRR is greater than required rate of return.

False

An investment should always be considered profitable if the total cash inflows are greater than the total cash outflows

False

An investment should always be considered profitable if the total cash inflows are greater than the total cash outflows.

False

An options contract is a contract for the sale of a good at some point in the future at a specified price.

False

Annual Depreciation (D) is multiplied by (1- marginal tax rate) to get the tax savings from depreciation.

False

As government programs are put in place to reduce business risk optimal leverage will decrease; which will allow farms to borrow more money.

False

Assets with lower liquidity often have lower profitability?

False

Assuming that an annual interest rate is 6%, an investor would be indifferent between $500 today and $12,000 in 55 years from today

False

Assuming that an annual interest rate is 6%, an investor would be indifferent between $500 today and $12,000 in 55 years from today.

False

Assuming that an annual interest rate is 6%, an investor would be indifferent between $500 today and $12000 in 55 years from today

False

At the start of the accounting period, the firm's beginning balance sheet is the source of last periods business income.

False

Avoid using fixed-interest rate loans when trying to reduce risk in financial decisions.

False

Bond holders are in a residual position in regards to claims on income and assets.

False

Bonds promise an uncertain payment per period and returns principal at maturity.

False

Both interest and principal amounts can be deducted from taxable income

False

Both interest and principal amounts can be deducted from taxable income.

False

Capital Budgeting is a chronological overview of expected cash income and expenses over a given period of time.

False

Capital Budgeting is a series of payments of a fixed amount for a specified number of periods.

False

Compounding interest means each time interest is paid. It is added to or compounded into the principal but does not earn interest.

False

Costs of equity are the costs a firm incurs for its financial capital. Cost of equity, in turn, refers to the debt and equity claims making up the liabilities side of the firm's balance sheet.

False

Credit Reserves becomes less valuable as credit is used.

False

Deflation is the increase in the general price level.

False

Depreciation changes reflect the funds that need to be set aside and accumulated from cross revenue in order to replace the depreciation asset. it is considered as a cash transaction.

False

Depreciation charges reflect the funds that need to be set aside and accumulated from gross revenue in order to replace the depreciation assets. It is considered as a cash transaction.

False

Discounting converts a present amount into an equivalent future amount.

False

Diversity does not reduce the risks in production decisions.

False

Efficient Markets mean that it is possible to forecast future values of stock prices.

False

Expected Return can be found with p12V1+p22V2+2p1p2S1S2y12.

False

Expected return is measured as the variance of the portfolio.

False

Fundamental analysis is a security analysis methodology for forecasting the pattern of prices by using the study of past market data

False

Fundamental analysis is a security analysis methodology for forecasting the pattern of prices by using the study of past market data.

False

Gains in business planning and risk efficiency can occur even if the principles of diversification are not followed.

False

Government programs are foolproof and always reduce business risk.

False

High asset liquidity is one the of the structural characteristics of the agricultural production sector.

False

High risk reaps a high return is not one of the keys to financial investing.

False

Human Resource management involves the protection of equity capital from risk.

False

If the net present value is negative then you have made an acceptable investment.

False

If the net present value to positive then you have made an unacceptable investment.

False

If the nominal price of an apple is $1 five years from today and the inflation rate is positive, then the price of an apple today is also $1.

False

If the real price of an apple is $1 five years from today, then the price of an apple today is less than $1.

False

If there are restraints on equity capital but no restraints on debt capital, we could finance with debt as long as returns were lower than the cost of debt.

False

In general, greater expected profits require less risk when making financial decisions.

False

In terms of profitability, the sensitivity of an investment to any variable can be tested by setting the specified variable equal to zero and solving for the net present value.

False

Increase debt relative to equity to reduce risk in financial decisions.

False

Incremental cash flows are taxed at one's average tax rate.

False

Incremental cash flows are taxed at one's sales tax rate.

False

Inflation is the decrease in the general price level

False

Investments in excess machinery capacity do not reduce the risks in production decisions.

False

Leverage that is between .33 and 1 is considered unfavorable.

False

Leverage that is less than .33 is considered unfavorable.

False

Leverage will increase profitability as long as rate of return on assets is less than the cost of debt.

False

Life Insurance Companies do not make loans to farmers.

False

Long-term planning horizons, lengthy payoff periods, seasonality, and uncertainties about future events and decision outcomes make the life- cycle effects very important in financial management.

False

Long-term planning horizons, lengthy payoff periods, seasonality, and uncertainties about future events and decision outcomes make the life-cycle effects very important in financial management.

False

Long-term planning horizons, lengthy payoff periods, seasonally, and uncertainties about future events and decision outcomes make the life-cycle effects very important in financial management.

False

Net Cash flows is calculated as the after-tax net returns minus the annual depreciation multiplied by the marginal tax rate.

False

Net Present Value is compensation for foregone investments or consumption.

False

Nominal cash flows can be discounted by either a nominal discount rate or a real discount rate

False

Nominal cash flows can be discounted by either a nominal discount rate or a real discount rate.

False

Planning Horizon is the length of the time required for an investment to pay itself out or to recover the initial outlay of funds.

False

Preparing a marketing plan will not reduce risk in marketing decisions.

False

Principal payments on a fully amortized loan decrease over the life of the loan.

False

Real cash flows can be discounted by either a nominal discount rate or a real discount rate. However, nominal cash flows must be discounted by a nominal discount rate only

False

Real prices are the prices that reflect today's purchasing power.

False

Risk Premium only depends on an individuals risk/return preference

False

Risk and return characteristics of an individual portfolio does not depend on the individual's risk/return preference.

False

Risk reduction is not possible through diversification.

False

Securities give you the title to underlying real assets only.

False

Sole- proprietor family-oriented farms are still common in the agricultural sector. Many of these operations separate business-related assets and liabilities from personal accounts

False

Sole-proprietor family-oriented farms are still common in the agriculture sector. Many of these operations separate business-related assets and liabilities from personal accounts

False

Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets (increase leverage), the weighted cost of capital will initially go up.

False

Suppose a investment has a life of 5 years, an after-tax discount rate of 12% and tax savings from depreciation of $1,500 per year. The present value of tax savings from depreciation is $8,400

False

Suppose an investment has a life of 3 years, an after tax discount rate of 10% and net returns of $12,800 per year. The present value of the after tax returns is $38,400

False

Suppose an investment has a life of 3 years, an after-tax discount rate of 10% and tax savings from depreciation of $1,067 per year. The present value of tax savings from depreciation is $3,201

False

Suppose an investment has a life of 3 years, an after-tax discount rate of 10%, and an after-tax terminal value of $60,800. The present value of the after-tax terminal values $60,800

False

Suppose an investment has a life of 4 years, an after-tax discount rate of 12%, and net returns of $15,000 per year. The present value of the after-tax net returns is $60,000.

False

Suppose an investment has a life of 5 years, an after-tax discount rate of 12%, and an after-tax terminal value of $75,000. The present value of the after-tax terminal value is $132,176.

False

Suppose an investment has a life of 5 years, an after-tax discount rate of 15%, and net returns of $15,000 per year. The present value of the after-tax net returns is $75,000.

False

Suppose an investment of 3 years an after- tax discount rate of 10% and and after tax terminal value of $60.800. The present value of the after tax terminal value is $60,800

False

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between to investments is equal to .5, diversification does not provide risk reduction, only risk averaging.

False

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between to investments is equal to 0, diversification does not provide risk reduction, only risk averaging.

False

Technical analysis is a security analysis methodology aiming to determine a security's value by focusing on underlying factors that affect a company's actual business

False

Technical analysis is a security analysis methodology aiming to determine a security's value by focusing on underlying factors that affect a company's actual business.

False

The Net Cash Flow is calculated as the after-tax net returns minus the annual depreciation multiplied by the marginal tax rate.

False

The Tax savings from Depreciation is subtracted from the cash flows when calculating the NPV using the component method

False

The Variance of a portfolio can be measured with p1r1+p2r2.

False

The after-tax discount rate is the before tax discount rate multiplied by the marginal tax rate.

False

The book value of a contract is the present value of future payments of any contract at the market rate

False

The book value of a contract is the present value of future payments of any contract at the market rate,

False

The book value of a contract is the present value of future payments of any contract discounted at the market rate.

False

The book value of an investment is the present value of the remaining payments discounted by the market rate.

False

The cash flow budget must not be formulated on a historical basis to provide an accounting check.

False

The coefficient of variation is calculated by dividing the expected value by the standard deviation. It is used to compare investments with different expected values and levels of dispersion

False

The conversion period is the length of time it takes to retire the principal of a loan.

False

The correct internal Rate of Return is found when the Net Present Value is equal to 1

False

The economic trade-off: greater expected profits require less risk.

False

The expected value is found by summing the values of all events

False

The first step to evaluate goal performance meaningfully is to estimate profitability.

False

The formula for Net Return is Cash Expenses-Cash Revenues

False

The future value is higher if one dollar today is compounded annually rather than monthly, holding everything else constant

False

The future value is higher if one dollar today is compounded annually rather than monthly, holding everything else constant.

False

The future value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant

False

The future value will be similar if the interest rate in a uniform annuity is greater, holding everything else constant.

False

The future value will be smaller if the interest rate in a uniform annuity is greater, holding everything else constant

False

The future value will be smaller if the interest rate in a uniform annuity is greater, holding everything else constant.

False

The greater the profit margin (the rate of return an assets - the cost of debt) of a firm decreasing leverage will increase profitability.

False

The impacts of time and risk are not important in financial management.

False

The interest rate accounts for the loss of value due to inflation

False

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value.

False

The managerial accounting reports are internally based records that often are tailored to the characteristics of general farm businesses.

False

The managerial accounting reports are internally based records that often are tailored to the characteristics of general farm businesses?

False

The market value of a contact is the future value of the remaining payments of a contract compounded at the market rate

False

The market value of a contract is the future value of the remaining payments of a contract compounded at the market rate

False

The market value of a contract is the future value of the remaining payments of a contract compounded at the market rate.

False

The market value of a contract value of the remaining payments of a contract compounded at the market rate.

False

The nominal interest rate does not account for the loss of value due to inflation.

False

The only way to measure inflation is by the Consumer Price Index

False

The only way to measure inflation is by the Consumer Price Index (CPI).

False

The only way to measure inflation is by the consumer price index

False

The present value is lower if one dollar in the future is discounted annually rather than monthly, holding everything else constant.

False

The present value of a single sum can be found with V(n)= V(o) (1+r)^N. V(o) is the present value V(n) is the future value in the N periods. r is the rate, and N is the number of periods

False

The present value of a single sum can be found with Vn=Vo(1+r)^N. Vo is the present value, Vn is the future value in N periods, r is the rate, and N is the number of periods.

False

The present value of after-tax saving from depreciation is obtained by discounting the annual tax savings from depreciation using the marginal tax rate as the discount rate.

False

The present value of the after-tax savings from depreciation is obtained by discounting the annual tax savings from depreciation using the marginal tax rate as the discount rate.

False

The present value will be greater if the interest rate in a uniform annuity is greater, holding everything else constant.

False

The present value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant

False

The present value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant.

False

The present value will be smaller if the number of payments in a uniform annuity is longer, holding everything else constant.

False

The price of bond and the interest rate are positively correlated

False

The price of bond and the interest rate are positively correlated.

False

The price of the bond goes down as the interest rates go down?

False

The program income statement projects profitability, and also indicates liquidity or loan reparability?

False

The rate of return on equity is equal to the income before interest and taxes divided by assets.

False

The real interest rate accounts for the loss of value due to inflation.

False

The real interest rate does not account for the time value of money.

False

The secondary market is the part of the capital market that deals with issuing of new securities.

False

The tax savings from depreciation is subtracted from the cash flows when calculating the NPV using the component method

False

The terminal value that should be used in calculating depreciation for capital budgeting is the sale price of the investment

False

The theory of accounting is the concern with how individuals and firms allocate resources through time

False

The theory of accounting is the concern with how individuals and firms allocate resources through time.

False

The total claims of creditors and owners can exceed the total value of assets

False

The total claims of creditors and owners can exceed the total value of assets?

False

The uniform series future value factor [USFV(PV,N)] is based on beginning of period cash flows. With PV being the present value and N being the number of periods.

False

There is a 68% chance that profits will be between two standard deviations above and two standard deviations below the mean.

False

To calculate the tax savings from interest multiply the principal paid by the marginal tax rate.

False

Uncertainty in marketing decisions depends on the price of outputs only.

False

Unpredictable fluctuations in cash flows and investment opportunities are not uses of liquidity.

False

Unused credit increases liquidity and returns.

False

Used credit decreases return, but increases liquidity.

False

Utility is bankable, tradable and easily measurable.

False

Variance is equal to the function of expected profit and risk.

False

Weighted cost of capital can be found with the formula ie(D/A)+ id(E/D). With ie being cost of equity capital, id being cost of debt capital, ia being cost of capital, D is debt, E is equity, and A is assets.

False

When finding the after-tax net return it is not important to discount with the after-tax discount rate.

False

When the rate of return on assets is greater than the cost of debt and leverage increases the profits stay constant.

False

When using straight-line depreciation to calculate depreciation for tax purposes, you should divide the cost basis by the planned life of the investment.

False

With compounded interest only the original principal, or amount of money borrowed, earns interest over the life of the transaction

False

With simple interest each time interest is paid, it is added to or compounded into the principal but does not earn interest

False

With simple interest each time interest is paid, it is added to or compounded into the principal but does not earn interest.

False

With simple interest each time interest is paid, it is added to or compounded into the principle but does not earn interest.

False

With simple interest each time time interest is paid, it is added to or compounded onto the principal but does not earn interest.

False

With unrestricted access to equity and debt, choose the leverage that gives the highest cost of capital

False

machinery sales, cost reduction, and income generating, are categories of alternative investments

False

the tax savings from depreciation is subtracted from the cash flows when calculating the NPV using the component method.

False

In 1994, the corporate name FFSTF was changed to the_____ to reflect the performance of the organization.

Farm Financial Standards Council

In 1994, the corporate name of FFSTF was changed to be the _________ to reflect the permanence of the organization.

Farm Financial Standards Council

Financial _____ is the ability of an investment to satisfy the financing terms and performance criteria agreed upon by the borrower and the lender.

Feasibility

Financial ______ is the ability of an investment to satisfy the financing forms and performance criteria agreed upon by the borrower and the lender

Feasibility

Financial _______ is the ability of an investment to satisfy the financial terms and performance criteria agreed upon by the borrower and the lender.

Feasibility

The ______ of a business, agency, household, or another economics unit involves the acquisition and use of financial resources and the protection of equity capital from various sources of risk.

Financial Management

Which of the following is not a risk in marketing decisions? Firm profitability over time Expand markets for your product Invest in storage facilities to increase the flexibility of when a crop must be marketed

Firm profitability over time

If you have an account with a 21.5% annual percentage rate where interest is compounded quarterly, what is the effective annual rate of interest? Pick the closest answer. a. 23.75% b. 23.3% c. 21.5% d. none of the above

INTEREST PER QUARTER= 𝟐𝟏.𝟓 = 𝟓. 𝟑𝟕𝟓% → 4𝟒 Answer: B EAR = (1 + 0.05375) - 1 = 1.23296 -1 = 23.3%

Which of the following statements is most likely correct for a project costing $50,000 and returning $14,000 per year for five years?

IRR is greater than 10%

What happens to PV if you lengthen the planned time until you reach a goal?

It decreases. You don' t need as much PV today to get to the FV you're aiming for in the end.

What is the Present Value formula for an annuity?

It is just the PV of all the individual CF's - PV= PMT/(1+Rate)+PMT/(1+Rate)^2 +...PMT/(1+Rate)^# of periods

Financial _____ is the amount of debt used to finance a firm's assets.

Leverage

_______ are claims on the firms assets by lenders and other creditors.

Liabilities

_______ refers to the firm's capacity to generate cash quickly and efficiently to meet its financial commitments as they fall due.

Liquidity

_________ facilitates tax management by allowing farmers to shift sales and expenditures from one year to another in response to swings in farm income and to defer tax obligations to later years

Liquidity-basis accountingX

______________ is the sum of principal payment and interest payment.

Loan payment per period

A discount rate must account for the followings except: -cost of capital -return on alternative investments -risk -taxes -management fee -none of the above

Management Fee

Natural Habitat

The preferred technique for evaluating most capital investments is

Net Present Value

A company accrued wages of $2,000 and collected accounts receivable of $10,000. Which of the following best describes the effect of these two transactions on the company?

Net income will increaseX

What is $1 million forty years from now worth today? (Assume inflation is 3% per year.)

PV= -$306,557 (N=40, I/Y=3, PMT=0, FV= 1,000,000)

Suppose you anticipate that you want extra spending money of $500 per month for the next 20 years. If you can earn 9% on your money, how much do you need to set aside today to cover your cash needs?

PV=$-55,572.48 (N=240, I/Y=9/12, PMT=500, FV=0)

Given all the choices below, which is not a primary source of business risk of agricultural firms?

Real estate price fluctuation

Jon and Robb 25% 55% 20%

Remodel E: 4700 SD: 27767 CV: 1693 Build E.: 47000 SD: 80722 CV: .582X

Which of the followings is not considered as a source of risk?

Research

Which of the followings is not considered as a source of risk? Production Marketing Financial Research

Research

Investment Analysis is a producer for evaluating the effects of investment choices on business's profitability, _______, and liquidity.

Risk

______ investors must be compensated for taking risks.

Risk-lovingX

The linkage between ________ and ________ is based on uncertainties about future events and decision outcomes.

Risk/time

Which of the following is a source of risk that can be categorized in financial risks rather than business risks

Risks attributed to borrowing and leasing

Which of the following is a source of risk that can be categorized in financial risks rather than business risks?

Risks attributed to borrowing and leasing

Suppose you can put your money in a savings account that pays 7%, compounded annually. How much money would you have in your savings account in 27 years if you invested $1350 today?

8389

Consider a bond with a Par Value of $1,000. It pays a coupon of 8% and the coupon is paid semiannually. It matures in 5 years. Calculate the annual yield on the bond if the price of the bond is $960.44.

Consider a bond with a Par Value of $1000. It pays a coupon of 12% and the coupon is paid semiannually. It matures in 20 years calculate the annual yield on the bond if the price of the bond is $723.98

What interest rate would a bank have to pay on a $15,000 deposit if you wanted to withdraw $64,915 from your bank account in 17 years? Assuming that interest is compounded yearly.

consider a bond with a par value of $1,000. it pays a coupon of 6% and the coupon is paid semiannually. it matures in 20 years. calculate the annual yield on the bond if the price of the bond is $723.98

Consider a bond with a Par Value of $1,000. It pays a coupon of 6% and the coupon is paid semiannually. It matures in 20 years. Calculate the annual yield on the bond if the price of the bond is $723.98.

9% Calculation: 40 N, FV = 1,000, PMT = 30, PV = -723.98, CPT i% = 4.5%. Thus, the yield = 2*4.5% = 9%

The yield on a bond is 15% and inflation is expected to be 5%. Calculate the real interest rate on the bond.

9.52%

The yield (interest rate) on a bond is 12.5% and the inflation is expected to be 2.5%. What's the real interest rate on the bond?

9.76%

Which of the followings factors help determine uncertainty in financial decisions? -Firm profitability over time -Changes in asset values -Cost of credit-changes in interest rates -Reliability and availability of data -Attitude of lender toward strategies adopted by the firm -A and B -B and C -C and D -A, B, C, D, and E

A, B, C, D, and E

Price of output which depends on supply and demand: world and local weather conditions production decisions of other producers price of inputs A and B B and C A and C A,B ,and C

A, B, and C

How can you reduce risk in marketing decisions? -Prepare a marketing plan -Recognize comparative marketing advantage -Know your competitors -Integrate vertically -Forward contract or hedge -A and B -B and C -C and D -A,B,C,D and E

A,B,C,D and E

You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?

Annuity A has a higher future value than annuity B.

If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then the APR is (Pick the closest answer.): a. 10.38% b. 10.00% c. 2.50% d. none of the above

Answer: B APR = 2.5% × 4 = 10%

The ________ is a systematic listing of all that the business owns (assets) and all that it owes (liabilities) at a specific point in time

Balance Sheet

________ is a systematic listing of all that the business owns (assets) and all that it owes (liabilities) at a specific point in time.

Balance Sheet

Sensitivity analysis provides information on:

Both A and B

The four stages that a farm business passes through its life cycle include

Both A and C

Sensitivity analysis provides information on

Both a and b

A farmer expects irrigation system will increase real operating receipts by $20,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 4% and the marginal tax rate is 20%. (i) What is the nominal net return at the end of year 2? a. $12,000 b. $14,400 c. $12,972 d. $11,520 ENTER RESPONSE HERE: [i] (ii) Calculate the nominal after-tax net return at the end of year 2. a. $10,383 b. $13,824 c. $14,400 d. $17,280 ENTER RESPONSE HERE: [ii]

C A

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $52,000. The loan will be fully amortized in 3 years at 10%. Marginal tax rate is 15%. (i) What is the loan balance at the end of 1st year? a. $38,646.53 b. $50,317.65 c. $36,290.03 d. None of the answers are correct ENTER RESPONSE HERE: [i] (ii) What is the loan balance at the end of 2nd year? a. $19,009.06 b. $23,957.70 c. $24,135.23 d. None of the answers are correct ENTER RESPONSE HERE: [ii]

C A

Which of the following has nothing to do with inflation

Decrease in the general price level

Which of the following has nothing to do with inflation?

Decrease in the general price level

Which item is included in a mission statement?

Definition of the business

Net Present Value is the ____ present value of cash inflows and present value of cash outflows associated with an investment.

Difference between

The process of finding present values from future payments is often referred to as_______. It is the opposite of the __________ process used to determine future value.

Discounting/ Compounding

_______ is defined as the withdrawal of durable assets from the business.

Disinvestment

What statement is not one of the four commonly used financial statements for assessing and monitoring the financial position and progress of any business including farms?

Executive Summary

What statement is not one of the four commonly used financial statements for assessing and monitoring the financial position and progress of any business including farms?

Executive summary

A balance sheet can be used to measure the effects of the firms financial performance for a year

Accounting methods are used to evaluate the future directions of a firm

An enterprise budget helps farm owners/managers evaluate the financial effect of incremental changes.

An income statement and a cash flow budget can be used to measure the firm's financial performance at a specific point in time

Capital budgeting is a chronological overview of expected cash income and expenses over a given period of time

Cash flow budgeting is the planning process used to determine whether an organizations long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth the funding of cash through the firms capitalization structure

Financial management involves the acquisition and use of marketing resources and the protection of debt capital from all kinds of risk

High asset liquidity is one of the structural characteristics of the agricultural production sector

The first step of the strategic management process is to establish the future direction of the firm and to articulate a mission statement.

The impacts of time and risk are important in financial management

The theory of finance is the concern with how individuals and firms allocate resources through time

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between investment A and investment B is -1, it is possible to combine investment A and investment B in a way that will eliminate all risks.

TRUE

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. The portfolio mix depends on the risk return preference of the investor.

TRUE

What are the two broad classes of assets that are commonly used to express the degree of liquidity

Tangible and intangible assetsX

Which of the followings is not a component of an NPV according to the Component Method?

Tax Savings from Financial Activites

Which of the followings is not a component of an NPV according to the Component Method?

Tax Savings from Financial Activities

Incremental cash flows are taxed using:

The Marginal Tax Rate

Which of the following is true about the NPV and IRR techniques?

The NPV and IRR techniques explicitly consider the cost of capital and the time value of money.

The sum of probabilities of all possible events of an outcome is_______

exactly equal to one

The sum of the probabilities of all possible events of an outcome is_______

exactly equal to one

"Maintenance and Replacement," "Cost Reduction," and "Income Divesting" are categories of alternative investments.

false

A leveraged Lease is a form of leasing that combines the hiring of labor services with the use of the tangible asset.

false

After several years, net returns will grow and the financing gap (net returns to land minus the loan payment) will increase.

false

An increase in financial risk decreases the need for liquidity.

false

An increase in leverage will decrease the need for liquidity reserves, holding everything else constant.

false

An investment is unacceptable if IRR is greater than required rate of return

false

An investment should always be considered profitable if the total cash inflows are greater than the total cash outflows.

false

An options contract is a contract for the sale of a good at some point in the future at a specified price

false

An options contract is a contract for the sale of a good at some point in the future at a specified price.

false

Assuming that an annual interest rate is 8%, an investor would be indifferent between $700 today and $15,000 in 55 years from today. Holding everything else constant.

false

Availability of storage will remove the flexibility in the timing of the marketing decisions.

false

Avoid using fixed-interest rate loans when trying to reduce risk in financial decisions.

false

Business risk is equal to the total farm risk plus financial risk.

false

Capital Lease (sometimes called Finance Lease) is a long-term contractual arrangement in which the lessee does not acquire control of an asset.

false

Capital Leases are a short-term lease in which the rental charge is calculated on a time basis. The lessor owns the asset and performs nearly all of the functions of ownership, including maintenance. The lessee pays the direct costs, such as fuel and labor.

false

Changes in collateral values are not important when determining uncertainty in financial decisions.

false

Costs of equity are the costs a firm incurs for its financial capital. Cost of equity, in turn, refers to the debt and equity claims making up the liabilities side of the firm's balance sheet.

false

Custom hire is an extension of capital leasing whose main feature is the formal involvement of a lender in providing debt capital to finance the lessor's purchase of the leased asset.

false

Decreasing the rate of return on assets can increase profitability.

false

Deflation is the increase in the general price level

false

Discount Method is a method of computing interest, with which, the interest is calculated on the original amount of the loan for its full period, and this amount, plus any other loan costs, is subtracted from the amount of the loan at the end.

false

Equity costs decrease as debt increases because of lower financial risk associated with higher financial leverage.

false

Expected Return can be found with p12V1+p22V2+2p1p2S1S2y12.

false

External capital rationing means that a farmer chooses to limit the capital invested in his business.

false

Financial risk is equal to the total farm risk plus business risk.

false

Financial risk is equal to the total farm risk times the business risk.

false

Gains in business planning and risk efficiency can occur even if the principles of diversification are not followed.

false

Good decisions guarantees the chances of favourable outcomes.

false

High risk reaps a high return is not one of the keys to financial investing.

false

If the profit margin (the rate of return an assets - the cost of debt) of a firm is negative, then increasing leverage will increase profitability .

false

If you have already purchased bonds, you want interest rates (market rates) on bonds to increase, holding everything else constant.

false

In general, greater expected profits require less risk when making financial decisions.

false

In the capitalization approach to find the market value one should multiply the net returns by the real returns value.

false

In the context of profitability, an investment is acceptable if the Internal Rate of Return is greater than zero.

false

Increase debt relative to equity to reduce risk in financial decisions.

false

Internal capital rationing means that a farmer chooses to limit the capital invested in his business.

false

"Pro forma" refers to setting up accounting information in advance.

True

A future contract for the sale of a god at some point in the future at a special price.

True

A future contract is a contract for the sale of a good at some point in the future at a specific price.

True

A projected cash flow statement can be used to determine if an investment is financially feasible

True

An efficient information system aids in financial control, risk management, the meeting of legal requirements and financial planning.

True

An enterprise budget is a financial management tool used to project costs and returns for an activity- such as livestock, grain or vegetable production.

True

An income statement and a cash flow budget can be used to measure the flow effects of the firm's financial performance over each period of time.

True

An increase in financial risk increases the need for liquidity.

True

An increase in leverage will cause an increase in financial risk.

True

An options contract is a contingent claim. It gives holders the right to buy or sell something at a specific price during a period of time

True

An options contract is a contingent claim. It gives holders the right to buy or sell something at a specific price during a period of time.

True

Annual Depreciation (D) is multiplied by the marginal tax rate to get the tax savings from depreciation.

True

Annuity is a series of payments of a fixed amount for a specified number of periods.

True

As government programs are put in place to reduce business risk optimal leverage will increase; which will allow farms to borrow more money.

True

Assuming that an annual interest rate is 4%, an investor would be indifferent between $1,000 today and $3,243 in 30 years from today. Holding everything else constant.

True

At the start of the accounting period, the firm's beginning balance sheet is the source of current and non-current assets.

True

Availability of storage may provide flexibility in the timing of the marketing decision.

True

Bonds promise a field period payment and returns principal at maturity.

True

Bonds promise a fixed period payment and returns principal at maturity.

True

Both the NPV and the internal rate of return methods recognize that the timing of cash flows affects project value.

True

Budgeting Methods are used to evaluate the future directions of a firm.

True

Budgeting methods are used to evaluate the future directions of a firm.

True

Buying disease resistant seed varieties can reduce risk in production decisions

True

Cash flows stated in nominal dollars over time can be converted to real dollars.

True

Cash flows stated in real dollars over time can be converted to nominal dollars

True

Cash flows stated in real dollars over time can be converted to nominal dollars.

True

Certainty- equivalent is defined by the certain amount of cash return that gives the same utility as a risky amount of cash return.

True

Ceteris paribus, an increase in the exchange rate, that is, the price of buying foreign currency in terms of domestic currency, leads to an increase in net exports

True

Ceteris paribus, an increase in the exchange rate, that is, the price of buying foreign currency in terms of domestic currency, leads to an increase in net exports.

True

Ceteris paribus, an increase in the exchange rate, this is, the price of buying foreign currency in terms of domestic currency, leads to an increase in next exports.

True

Choice of discount rate is an individual decision.

True

Compounding converts a present amount into an equivalent future amount.

True

Compounding implies that interest is added to principal and interest is paid on earned interest thereafter

True

Compounding implies that interest is added to principal and interest is paid on earned interest thereafter.

True

Credit Reserves become more valuable as credit is used

True

Developing a realistic financial plan can help reduce risk in financial decisions.

True

Discounting convert a future amount into an equivalents present amount?

True

Discounting converts a future amount into an equivalent present amount

True

Discounting converts a future amount into an equivalent present amount.

True

Emphasis on one means of countering uncertainty (e.g., liquidity) may allow an investor to carry greater risks in production or marketing, while the reverse may also be true.

True

Expected Return is the weighted average of the two investments.

True

Farm land is considered as a non-depreciable asset

True

Financial Management involves the acquisition and use of financial resources be economics units and the protection of the units' equity capital from business and financial risk.

True

Financial management evaluates the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, cash flow budgets, and capital budgets.

True

Financial management involves the acquisition and use of financial resources and the protection of equity capital from all kinds of risk.

True

Financial management involves the acquisition and use of financial resources by economics units and the protection of the units' equity capital from business and financial risk.

True

Financial management involves the acquisition and use of financial resources.

True

Financial management involves the protection of equity capital from risk.

True

Financing refers to the means of acquiring control of assets: ownership by cash purchase or borrowing or leasing.

True

Finding optimal leverage is a choice that is specific to individuals.

True

Fully Amortized loan implies and equal periodic payment including principal and interest.

True

Fully amortized loan implies an equal periodic payments including principal and interest

True

Gains in business planning and risk efficiency can occur if the principles of diversification are followed.

True

Greater leverage will lead to greater risk.

True

Highly non liquid assets cannot be readily converted to cash without a substantial loss in value to the firm?

True

Identification of investment opportunities is a crucial function of management.

True

If a loan is fully amortized it will have an equal periodic payment including principal and interest

True

If a loan is fully amortized it will have an equal periodic payment including principal and interest.

True

If a loan is fully amortized it will have an equal periodic payment including principle and interest

True

If a loan is fully amortized it will have unequal periodic payments including principal and interest

True

Internal capital rationing means that there is a limit to how much capital a farmer can obtain from external sources to invest in his business.

false

If retained earnings are insufficient to meet investment needs, especially when earnings and investment opportunities are unpredictable, the firm first draws down its holdings of cash and financial assets and then turns to external sources of funds.

True

If the discount rate is lower than the cost of capital the investment would not recover the cost of capital.

True

If the net present value is negative then you have made an unacceptable investment

True

If the net present value is negative then you have made an unacceptable investment.

True

If there are restraints on equity capital but no restraints on debt capital the discount rate must be at least as high as the borrowing rate.

True

If there are restraints on equity capital but no restraints on debt capital, we could finance with debt as long as returns were greater than the cost of debt.

True

In an efficient market, prices are adjusted for information.

True

In general, greater expected profits require greater risk when making financial decisions.

True

In terms of accountability for taxes and financial feasibility, nominal cash flows are more accurate than real cash flows

True

In terms of accountability for taxes and financial feasibility, nominal cash flows are more accurate than real cash flows.

True

In the context of profitability, an investment is acceptable if the Net Present Value is zero or greater

True

In the context of the profitability, an investment is acceptable if the net present value is zero or greater

True

Income taxes due on the closing balance sheet should come directly from that year's income statement

True

Incremental cash flows are taxed at one's marginal tax rate

True

Inflation is an increase in the general level of prices for all goods and service in an economy

True

Inflation is an increase in the general level of prices for all goods and services in an economy.

True

Information Flows are information about past, present, and expected business performance. This information comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions.

True

Initiate cost containment strategies to reduce risk in financial decisions.

True

Interest can be deducted from taxable income

True

Interest can be deducted from taxable income.

True

Interest on a business loan is tax deductible

True

Interest on a business loan is tax deductible.

True

Interst payment on a fully amortized loan decline over the life of the loan

True

Investing in more risky enterprises will help reduce risk in financial decisions.

True

It is best to layout cash flows using a time line

True

Land is an asset that does not depreciate

True

Leverage increases financial risk.

True

Leverage is found by dividing debt by equity.

True

Leverage that is less than .33 is considered favorable.

True

It is important to remember in a lease the buyer will take the ownership of the asset and the seller will lose ownership completely.

false

Liquidity of corporate shares can be high, but variability of earnings and difficulty in attracting high-quality management dampens income prospects for investors.

True

Liquidity refers to the ability to generate cash to meet demands as they occur and to provide both anticipated and unanticipated events. The firm's need for liquidity is closely tied to its risk position; the occurrence of risks is one need for liquidity.

True

Low asset liquidity is one the of the structural characteristics of the agricultural production sector.

True

Most applications in agricultural and applied finance involve uncertainty about a financial return, or the value a financial position will achieve, although many components may ultimately influence these risks and how they translate to equity or another measure of interest.

True

Mutual funds are a pool of funds from investors. These funds are invested in a portfolio of securities.

True

Lessee is the owner of an asset who permits another party to use the asset under a lease

false

Leverage that is between .33 and 1 is considered unfavorable.

false

Leverage that is greater than 1 is considered favorable

false

Leverage that is less than .33 is considered unfavorable.

false

Net Cash Flow is the stream of cash that the owner can withdraw for consumption or reinvestment elsewhere, which includes all cash flows relating to an enterprise and all cash outflows for operating expenses, capital expenditures, and income taxes.

True

Net Revenue is equal to operating revenue minus operating expense.

True

Nominal cash flows should be discounted with the nominal discount rate

True

Once a relevant risk is identified, the process of managing risk is based on the steps of financial control—setting goals, measures, norms, and tolerance limits; designing an information system; and initiating corrective actions when needed.

True

Loan Payments do not include a real return and inflation premium

false

Marketing risk responses do not include inventory management and forward and futures contracts.

false

Net returns to land have an inflation premium and are expected to increase at the rate of inflation.

false

One of the capital budgeting methods is the Component Method. In this method, we calculate net cash flow for each period & then calculate the NPV for the investment.

false

Operating Lease is a long-term contractual arrangement in which the lessee acquires control of an asset in return for rental payments to the lessor.

false

Payback Period is the time span needed to make an appropriate decision for the first period (the amount of time an organization will look into the future when preparing a strategic plan).

false

One of the key components of financial investing is that there is no expected high return without bearing high risk.

True

Productions, marketing and financial are the sources of risk.

True

Proforma Statements can be used to create a business plan.

True

Proforma statements can be used to create a business plan

True

Projected Cash Flow Statement can be used to determine if an investment is financially feasible.

True

Quantities of outputs depend on weather and water availability.

True

Rate of inflation is the percentage rate of increase in inflation

True

Rate of inflations is the percentage rate of increase in inflation

True

Real Prices are the prices that reflect today's purchasing power at a specific point in time.

True

Real Prices are the prices that reflect today's purchasing power.

True

Real cash flows can be discounted by a real discount rate only

True

Real cash flows can be discounted by a real discount rate only.

True

Real prices are the prices with the general price level effect removed.

True

Risk Aversion refers to the subjective tendency of investors to avoid unnecessary risk.

True

Risk and return characteristics of an individual portfolio depend on the individual's risk/return preference.

True

Risk is measured as the variance of the portfolio.

True

Risk-adjusted discount rate is the rate established by adding a risk premium to the risk-free are when investments are known to be risky and the investor is risk averse

True

Sensitivity of the investment to a variable can be measured by the steepness of the slope

True

Simple Interest means only the original principal, or amount of money borrowed, earns interest over the life of the transaction

True

Simple interest means only the original principal, or amount of money borrowed, earns interest over the life of the transaction

True

Simple interest means only the original principal, or amount of money borrowed, earns interest over the life of the transaction.

True

Some risk responses may exhibit several of these effects, as with purchasing insurance, which both builds liquidity and transfers the risk-bearing function outside the business.

True

Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets (increase leverage), the weighted cost of capital will initially go down.

True

Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets, leverage goes up.

True

Suppose and investment has a life of 5 years, an after-tax discount rate of 15% and net returns of $15,000 per year. The present value of the after-tax net returns is $50,282

True

Suppose and investment has a life of 5 years, an after-tax discount rate of 15%, and net returns of $15,000 per year. The present value of the after-tax net returns is $50,282.

True

Planning Horizon is the length of time required for an investment to pay itself out or to recover the initial outlay of funds.

false

Preparing a marketing plan will not reduce risk in marketing decisions.

false

Risk Premium is the higher compensation that a risk-lover investor requires on a risky investment than on a risk-free investment.

false

Secure markets mean that stock prices have adjusted for all information available and there are no sure bargains.

false

Service fees, prepaid interest, fees for credit reports, compensating balances, and stock requirements are the only possible non-interest costs to consider when comparing loans.

false

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between two investments is less than 1, then investing in some of investment 1 can reduce risk and increase expected returns.

True

Tax Savings from interest can be found by multiplying the marginal tax rate by the interest paid.

True

Terminal Value is the value of an investment at the end of the planning horizon

True

Terminal value is the value of an investment at the end of the planning horizon

True

The 150% declining balance method is used in depreciating for most classes of depreciable farm and ranch assets.

True

The Net Cash Flows is calculated as cash revenues minus cash expenses minus the marginal tax rate times the taxable income

True

The Net Present Value can be calculated as the PV( Cash Outflows) where cash flows are discounted at the required rate of return on an investment.

True

The Variance of a portfolio can be measured with p12V1+p22V2+2p1p2S1S2y12.

True

The addition of durable assets to a business is known as investment.

True

The balance sheet can be used to measure the firm's financial position at a specific point in time.

True

The book value of a contract is the future payments of any contract discount at the contractual rate

True

The book value of a contract is the future payments of any contract discounted at the contract rate.

True

The book value of a contract is the future payments of any contract discounted at the contractual rate.

True

The book value of an investment is the present value of the remaining payments discounted by the contract rate.

True

The cash flow budget is a project of all the cash transactions relating to the business that occur during the accounting period, usually one year:

True

The conversion period is the time that principal accrues interest before interest is added to principal

True

The correct Internal Rate of Return is found when the Net Present Value is equal to 0.

True

The economic trade-off: greater expected profits require greater risk.

True

The first step of the strategic management process is to establish the future direction of the firm and to articulate a mission statement.

True

The formula for Net Return is Cash Revenues-Cash Expenses

True

The future value is higher if one dollar today is compounded monthly rather than annually, holding everything else constant

True

The future value of a single sum can be found with VN=V0(1+r)N. V0 is the present value, VN is the future value in N periods, r is the rate, and N is the number of periods.

True

The future value of a single sum can be found with VN=V0(1+r)^N. V0 is the present value, VN is the future value in N periods, r is the rate, and N is the number of periods.

True

The future value will be greater if the interest rate in a uniform annuity is greater, holding everything else constant.

True

The future value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.

True

The initial focus of FFSC was to develop recommended guidelines and standards for farm financial reporting for use by internal managers and by external audiences such as lenders and investors

True

The loan balance when an investment is terminated can be obtained by calculating the book value of the loan or preparing an amortization schedule.

True

The magnitude and timing of cash flows are important factors influencing financial feasibility.

True

The marginal tax rate is the percentage taken from the next dollar of taxable income above a pre-defined income threshold.

True

The maturity of debt securities traded in the bond market is greater than 1 year.

True

The measure that determines if the investment generates enough cash each year to meet all the cash obligations including debt payments is referred to as liquidity.

True

The net cash flow is calculated as cash revenues minus cash expenses minus the marginal tax rate times the taxable income.

True

The net present value can be calculated as the PV (Cash Inflows)- PV (Cash Outflows) where cash flows are discounted at the required rate of return on an investment

True

The net present value is an investment profit over the required return to capital

True

The nominal interest rate accounts for the time value of money and the loss of value due to inflation.

True

The outcome of decisions is dependent on future events, and time and risk must be considered.

True

The planning horizons for agricultural firms typically extend over a long period of time. When long planning horizons, the level and timing of profits will influence the present wealth of the firm. The profitability goal is often expressed as discount present values of projected earnings?

True

The present value is lower if one dollar in the future is discounted monthly rather than annually, holding everything else constant.

True

The present value of cost is equal to the initial cost.

True

The present value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.

True

The present value will be less if the interest rate in a u form annuity is greater, holding everything else constant

True

The present value will be less if the interest rate in a uniform annuity is greater, holding everything else constant

True

The price of bonds goes up an interest rates go down.

True

The price of bonds goes up as interest rates go down.

True

The real interest rate accounts for the time value of money

True

The real interest rate accounts for the time value of money.

True

The standard deviation is the amount of dispersion or variation about the expected value?

True

The tax savings from Depreciation is added to the cash flows when calculating the NPV using the component method.

True

The terminal value that should be used in calculating depreciation for capital budgeting is the sale price of the investment.

True

The terminal value that should be used in calculating depreciation for capital budgeting is zero

True

The terminal value that should be used in calculating depreciation for capital budgeting is zero.

True

The theory of finance is the concern with how individuals and firms allocate resources through time.

True

The withdrawal of durable assets from the business is disinvestment.

True

There is a 95% chance that profits will be between two standard deviations above and two standard deviations below the mean.

True

To check financial feasibility, we only need to look at NCF (net cash flow before debt)

True

To check financial feasibility, we only need to look at NCF (net cash flow before debt).

True

To formalize characteristics of risk, we usually employ standard statistical methods that convey the probabilities of the possible outcomes, and use simple statistics to compare two or more risky events, or to describe the resulting distribution of combining two or more risky positions into what is termed a portfolio.

True

Use fixed-interest rate loans to reduce risk in financial decisions.

True

Vertical integration will reduce risk in marketing decisions.

True

When calculating IRR with a trial and error process, discount rates should be raised when NPV is positive.

True

When finding the present value of tax savings from depreciation is it important to use the after- tax discount rate.

True

When finding the present value of tax savings from depreciation it is important to use after-tax discount rate

True

When finding the preset value of tax savings from depreciation is it important to use the after-tax discount rate.

True

When the rate of return on assets is greater than the cost of debt and leverage increases the profits increase as well.

True

When the rate of return on assets is less than the cost of debt and leverage increases the profits decrease.

True

With compounded interest each time interest is paid, it is added to or compounded into the principal and earns interest over the life of the loan

True

With compounded interest each time interest is paid, it is added to or compounded into the principal and earns interest over the life of the loan.

True

Yield calculates as the discount rate that makes the present value of cash inflows equal to the present value cash outflows.

True

Yield is calculated as the discount rate that makes the present value of cash inflows equal to the present value of cash outflows

True

he rate of return on equity is equal to the income after interest and taxes divided by equity.

True

in general, greater expected profits require greater risk when making financial decisions

True

Stocks that have a high positive correlation provide a diversified portfolio with lower risk than a diversified portfolio with stocks that have a negative correlation, holding everything else constant.

false

Suppose a farmer has financed all assets with equity. If the farmer uses debt to add assets (increase leverage), the weighted cost of capital will initially go up faster than the cost of equity capital.

false

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the Correlation between two investments is equal to 0, it is possible to combine the two investments in a manner that will eliminate all risk.

false

What is compounding?

When funds earn interest on interest. We find the future values with compounding.

What is a flat rate of interest?

When funds only earn interest on the initial value. (NO compounding involved)

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the Correlation between two investments is equal to 1, it is possible to combine the two investments in a manner that will eliminate all risk.

false

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between investments A and investment B is 1, risk averaging does not provide risk reduction, only diversification.

false

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between to investments is equal to .5, diversification does not provide risk reduction, only risk averaging.

false

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between two investments greater than 1, then investing in some of investment 1 can reduce risk and increase expected returns.

false

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. The portfolio mix does not depend on the risk return preference of the investor.

false

The IRR is the rate of return on the cash flows of the investment, also known as the opportunity cost of capital

false

The Net Cash Flow is calculated as Cash Revenues minus Cash Expenses plus the marginal tax rate times the taxable income.

false

The Net Cash Flow is calculated as the after-tax net returns minus the annual depreciation multiplied by the marginal tax rate

false

The Net Cash Flow is calculated as the after-tax net returns minus the annual depreciation multiplied by the marginal tax rate.

false

The Net Present Value represents the investment profit over a zero rate of return on capital.

false

The Tax savings from Depreciation is subtracted from the cash flows when calculating the NPV using the component method

false

The actuarial rate is the interest rate on an investment or loan without adjusting for inflation

false

A loan that is repaid in equal payments over a specified time period is referred to as a (n): a. discounted loan b. amortized loan c. simple interest-free loan d. inflation-indexed loan

The book value of a contract is the present value of future payments of any contract discounted at the market rate.

false

If the stated or nominal interest rate is 10 percent and the inflation rate is 5 percent, the net or differential compounding rate would be ________ percent a. ten b. five c. two d. fifteen

Suppose you have a choice of two equally risky annuities, each paying $1,000 per year for 20 years. One is an annuity due, while the other is an ordinary annuity. Which annuity would you choose? a. the ordinary annuity b. the annuity due c. either one because the annuities have the same present value d. without information about the appropriate interest rate, we cannot tell which annuity is better

The amount earned on a deposit becomes part of the principal at the end of a period and can earn a return in future periods is called a. discount interest. b. compound interest. c. primaryinterest. d. future value.

Which of the following characteristics is not descriptive of an amortization schedule? a. Each payment is the same. b. The same dollar amount of interest is paid with each payment. c. Payment on principal increases with each total payment. d. Balance owed is reduced by each payment.

The book value of a contract is the present value of the remaining payments of a contract discounted at the market rate.

false

The coefficient variation is calculated by dividing the expected value by the standard deviation. it is used to compare investments with different expected values and levels of dispersion

false

The conversion period is the length of time it takes to retire the principal of a loan

false

The effective interest rate is the interest rate stated on a bank promissory note.

false

The effective rate is the discount rate that equates to zero the sum of the present values of all cash flows associated with the loan transaction.

false

The efficient set can be estimated by calculating the maximum variance for a given range of expected profit.

false

The future value is higher if one dollar today is compounded annually rather than monthly, holding everything else constant.

false

Kristen has just purchased a used Mercedes for $18,995. She plans to make a $2,500 down payment on the new car. What is the amount of her monthly payment on the remaining loan if she must pay 12% annual interest on a 24-month car loan? Pick the closest answer. a. $759.53 b. $776.48 c. $894.16 d. $899.87

b $18,995 - $2,500 = $16,495 PV 16,495 N 24 I/Y 1 FV 0 → PMT = $776.48

The future value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant.

false

The future value will be smaller if the interest rate in a uniform annuity is greater, holding everything else constant.

false

The greater the profit margin (the rate of return an assets - the cost of debt) of a firm decreasing leverage will increase profitability.

false

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value

false

The market interest rate is the interest rate stated on a bank promissory note.

false

The market value of a contract is the future value of the remaining payments of a contract compounded at the market rate.

false

The maturity of debt securities traded in the money market is more than 1 year.

false

The maximum bid price of land can be found by setting the NPV equal to one and solving for cost.

false

The present value of an annuity can be calculated by adding each sum of money in the annuity.

false

The present value of the after-tax savings from depreciation is obtained by discounting the annual tax savings from depreciation using the marginal tax rate as the discount rate.

false

The present value will be greater if the interest rate in a uniform annuity is greater, holding everything else constant.

false

The present value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant

false

The present value will be greater if the number of payments in a uniform annuity is shorter, holding everything else constant.

false

The present value will be greater if the number of payments is a uniform annuity is shorter, holding everything else constant.

false

The price of a bond goes down as interest rates go down.

false

The pro forma income statement projects profitability, and also indicates liquidity or loan repayability

false

The terminal value that should be used in calculating depreciation for capital budgeting is the sale price of the investment.

false

The total loan payment is constant over time for equal principal loans.

false

The total loan payment is decreasing for fully amortized loans.

false

The uniform series future value factor [USFV(r,N)] is based on beginning of period cash flows. With r being the rate and N being the number of periods.

false

There is a 68% chance that profits will be between two standard deviations above and two standard deviations below the mean.

false

This interest rate per conversion period is called the effective interest rate.

false

Unused credit decreases liquidity and returns.

false

Used credit decreases returns and increases liquidity.

false

Utility Maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest preference.

false

Variance is equal to the function of expected profit and risk.

false

We always use the real discount rate to calculate the NPV when using nominal cash flows.

false

When choosing the best investment when using credit rationing it is important to rank the investments using the annuity equivalent form lowest to highest.

false

When choosing the best mutually exclusive investment you select the investment with the lowest annuity equivalent.

false

When comparing loans based on liquidity the repayment schedule is the only factor that is important.

false

When comparing loans based on the least cost one must choose the loan with the least cost. However, it is not important to account for the time value of money.

false

When comparing loans based on the least cost when the conversion periods are different, one can compare the actuarial or annual percentage rate of the loans.

false

When comparing loans based on the least cost when the conversion periods are the same, one can compare the effective rates.

false

When finding the present value of an annuity equivalent we use A= Ae/[USPVr%,N].

false

When rate of return on assets is less than the cost of debt and leverage increases the profits increase as well.

false

When the rate of return on assets is equal to the cost of debt and leverage increases the profits decrease

false

When the rate of return on assets is greater than the cost of debt and leverage increases the profits stay constant.

false

When using straight-line depreciation to calculate depreciation for tax purposes, you should divide the cost basis by the planned life of the investment.

false

When we calculate the annuity equivalent, it is best to use nominal discount rate.

false

With unrestricted access to equity and debt, choose the leverage that gives the highest cost of capital

false

Yield is calculated as the discount rate that makes the future value of cash inflows equal to the present value of cash outflows.

false

Yield is calculated as the discount rate that makes the present value of cash inflows greater than the present value of cash outflows.

false

A source of liquidity that arises from the liability side of firm activities is known as credit control.

falseq

A generous benefactor to the local university plans to make a one-time endowment which would provide the university with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be? Pick the closest answer. a. $300,000 b. $3,000,000. c. $750,000. d. $1,428,571.

b (ENDOWMENT) × 5% = $150,000 𝐄𝐍𝐃𝐎𝐖𝐌𝐄𝐍𝐓 = 𝟏𝟓𝟎,𝟎𝟎𝟎 = $𝟑, 𝟎𝟎𝟎, 𝟎𝟎𝟎

Larry deposited $5,000 in a savings account that paid 8% interest compounded quarterly. What is the effective rate of interest? a. 8.00% b. 8.24% c. 8.33% d. 8.46%

b EAR = (1 + R)m - 1 = (1.02)4 - 1 = 8.24%

Your subscription to Consumer Reports is about to expire. You may renew it for $24 a year or, instead, you may get a lifetime subscription to the magazine for a onetime payment of $400 today. Payments for the regular subscription are made at the beginning of each year. Using a discount rate of 5%, how many years does it take to make the lifetime subscription the better deal? Pick the closest answer. a. 25 years b. 28 years c. 30 years d. 40 years

c BGN MODE PV 400 FV 0 PMT -24 I/Y 5 → N = 32.3

Taylor has just accepted a job as a stockbroker. He estimates his gross pay each year for the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. The present value of these cash flows, if they are discounted at 4%, is closest to a. $79,452.30 b. $80,294.50 c. $81,517.10 d. $88,000

c FV 35,000 N 1 I/Y 4 → PV = $33,653.85 FV 21,000 N 2 I/Y 4 → PV = $19,415.68 FV 32,000 N 3 I/Y 4 → PV = $28,447.88 $81,517.41

The basic future and present value equations contain four variables. Which one of the following is not included? a. present value (PV) b. future value (FV) c. interest rate (r) d. inflation rate (I) e. number of periods (n)

When compounding more than once a year, the true opportunity costs measure of the interest rate is indicated by the: a. annual percentage rate b. contract rate c. stated rate d. effective annual rate

Which of the following statements is false? a. The present value of a future sum decreases as the discount rate increases. b. If the present value of a sum is equal to its future value, the interest rate must be zero. c. If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series. d. For a given APR, the present value of a future sum decreases as the number of discounting periods per year decreases.

An analysis of what happens to the estimate of the net present value when you examine a number of different likely situations is called ______ analysis.

Senario

To ascertain whether the accuracy of the variable cost estimate for a project will have much effect on the final outcome of the project, you should probably conduct _____ analysis.

Sensitivity

______ is the square root of the variance and provides a sense of the "typical" amount of deviation that can be expected about the mean (above and below).

Standard Deviation

In estimating "after-tax incremental operating cash flows" for a project, you should include all of the following EXCEPT

Sunk costs

A cash flow budget is a chronological overview of cash income and expenses over a given period of time

A partial budget helps farm owners/managers evaluate the financial effect of incremental changes.

Accounting tools consist of the balance sheet, income statement, and cash flow statement.

An enterprise budget is a financial management tool used to project costs and returns for an activity-such as livestock, grain or vegetable production

An income statement is a financial statement that reports a company's financial performance over a specific accounting period

At the start of the accounting period, the firm's beginning balance sheet is the source of current and non current assets

Budgeting methods are used to evaluate the future directions of a firm

Information flows are information about past, present, and expected business performance. this information comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions.

Low asset liquidity is one of the structural characteristics of the agricultural production sector

Which of the followings is not a source of price information?

government

When the NPV of an investment is positive, then the IRR will be:

greater than the opportunity cost of a capital

When the NPV of an investment is positive, then the IRR will be

greater than the opportunity cost of capital

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $88,000. The loan will be fully amortized in 3 years at 12%. Marginal tax rate is 20%. (i) What is the interest payment in the 1st year? a. $12,672.00 b. $13,200.00 c. $10,560.00 d. None of the answers are correct (ii) What is the principal payment in the 1st year? a. $20,862.97 b. $20,041.13 c. $4,400.00 d. $26,078.71 (iii) What is the loan balance at the end of 1st year? a. $83,600.00 b. $67,137.03 c. $67,958.87 d. $61,921.29 (iv) What is the tax saving in the 1st year? a. $2,640.00 b. $2,112.00 c. $1,689.60 d. None of the answers are correct

i: C ii: D iii: D iv: B

A farmer expects irrigation system will increase real operating receipts by $22,000 per year but will also increase real operating expenses by $5,000. Suppose that the inflation rate is 3% and the marginal tax rate is 15%. (i) What is the nominal net return at the end of year 2? a. $16,490 b. $18,035 c. $17,000 d. $19,550 (ii) Calculate the nominal after-tax net return at the end of year 5. a. $19,708 b. $19,550 c. $18,963 d. $16,752

i: B-$18,035 ii: D- $16,752

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $250,000. The loan will be fully amortized in 3 years at 14%. Marginal tax rate is 15%. (i) What is the principal payment in the 1st year? a. $61,780.44 b. $54,208.66 c. $72,682.87 d. None of the answers are correct (ii) What is the principal payment in the 2nd year? a. $65,910.60 b. $82,858.47 c. $8,294.83 d. None of the answers are correct

i: C ii: B

Given the following information: Initial Loan Amount = $36,200 Interest Rate = 6% Fully amortized loan over 10 years. What is the annual loan payment? a. $12,679.61 b. $6,323.72 c. $4,918.42 d. $9,565.38 What is the remaining principal balance on the following loan at the end of 4 years? a. $63,636.01 b. $36,200.00 c. $24,185.47 d. $27,308.94

i: C ii: C

A farmer expects irrigation system will increase real operating receipts by $20,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 4% and the marginal tax rate is 20%. (i) What is the nominal net return at the end of year 2? a. $12,000 b. $14,400 c. $12,972 d. $11,520 (ii) Calculate the nominal after-tax net return at the end of year 2. a. $10,383 b. $13,824 c. $14,400 d. $17,280

i: C-$12,972 ii:A-$10,383

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $88,000. The loan will be fully amortized in 3 years at 12%. Marginal tax rate is 20%. (i) What is the total interest payment for this loan? a. $25,514.24 b. $26,413.77 c. $18,318.02 d. $21,916.13 (ii) What is the total amount of tax savings from interest on this loan? a. $4,383.23 b.$5,382.58 c. $3, 593.60 d. None of the answers are correct

i: D ii: A

A farmer is considering borrowing money from a bank. Given the following information : Initial loan amount is $95,000. The loan will be fully amortized in 3 years at 12%. Marginal tax rate is 25%. (i) What is the tax saving in the 1st year? a. $3,562.50 b. $2,137.50 c. $3,800.00 d. $2,850.00 (ii) What is the tax saving in the 2nd year? a. $1,504.05 b. $2,673.87 c. $2,506.76 d. $2,005.41

i: D ii: D

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $250,000. The loan will be fully amortized in 3 years at 14%. Marginal tax rate is 15%. (i) What is the tax saving in the 1st year? a. $6,037.50 b. $6,176.47 c. $4,462.50 d. $5,250.00 (ii) What is the tax saving in the 2nd year? a. $4,282.21 b. $3,165.11 c. $4,380.78 d. $3,723.66

i: D ii: D

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $250,000. The loan will be fully amortized in 3 years at 14%. Marginal tax rate is 15%. (ii) What is the interest payment in the 1st year? a. $41,176.47 b. $29,750.00 c. $40,250.00 d. $35,000.00 (iii) What is the interest payment in the 2nd year? a. $21,100.74 b. $29,205.17 c. $28,548.06 d. $24,824.40 (iii) What is the total interest payment for this loan? a. $83,605.86 b. $82,022.27 c. $73,048.61 d. None of the answers are correct

i: D ii: D iii: C

Add-on Method is a method of computing interest, with which, the interest is calculated on the original loan principal for the entire period of the loan.

true

All of the following non-interest costs are important to consider when comparing loans: Service Fees, Prepaid Interest, Fees for Credit Reports, Compensating Balances, and Stock Requirements.

true

Although local businesspersons, such as lenders, real estate agents, professional managers, extension personnel, lawyers, and farmers, may have good, timely impressions of the land market, but their information is largely based on opinions, observations, and judgments.

true

An increase in debt does not affect business risk, holding everything else constant.

true

An increase in leverage will cause an increase in financial risk

true

An increase in leverage will cause an increase in financial risk.

true

An increase of investment in liquid assets can help reduce financial risks.

true

Annual Depreciation (D) is multiplied by the marginal tax rate to get the tax savings from depreciation.

true

Annuity equivalent is an uniform annuity over the life of an investment that is equivalent to the investments net present value.

true

Annuity is a series of payments of a fixed amount for a specified number of periods.

true

As government programs are put in place to reduce business risk optimal leverage will increase; which will allow farms to borrow more money.

true

As leverage increases financial risk also increases

true

As leverage increases financial risk also increases.

true

Assuming that an annual interest rate is 4%, an investor would be indifferent between $850 today and $2,757 in 30 years from today.

true

Assuming that an annual interest rate is 7%, an investor would be indifferent between $750 today and $4,071 in 25 years from today.

true

Because of its durability and immobility, land has special treatment in institutional arrangements such as taxation, leasing, and government programs.

true

Being taxed on capital gains that predominately come from inflationary increases and not because of real changes in wealth is called the inflationary tax.

true

Both the NPV and the internal rate of return methods recognize that the timing of cash flows affects project value.

true

Companies offering operating leases are usually those that perform maintenance tasks, such as manufacturers or their subsidiaries, dealers, or other specialized businesses.

true

Crop-share lease is a kind of land lease, where a specified percentage of the crop is paid to the land owner for use of the land. Ordinarily, tenant proved all labor and machinery, the land owner provides the real estate, and both parties share most of the variable cost of production.

true

Efficient markets mean that stock prices have adjusted for all information available and there are no sure bargains.

true

Even though government programs are designed to reduce business risk, they may actually increase total farm risk

true

Expected Return can be found with p1r1 +p2r2.

true

Expected Return is the weighted average of the two investments.

true

Expected Utility is equal to the function of expected profit and risk

true

Farm real estate leases may be short or long-term, and they may differ substantially in their rental arrangements.

true

Financial risk is equal to the total farm risk minus the business risk.

true

Firms must decide optimal size and optimal financing of assets.

true

For mutually exclusive investments or if there is capital rationing, investments should be compared.

true

Gains in business planning and risk efficiency can occur if the principles of diversification are followed.

true

If it is known in advance that investments are acceptable it is okay to omit common cash flows when comparing.

true

If the conversion period is 1, the APR is the same as the actuarial rate.

true

Improving record keeping will increase credit availability.

true

In addition to interest, noninterest costs consist of all charges that are payable directly or indirectly to the borrower and that are imposed directly or indirectly by the lender as incident to or as a condition of the extension of the loan.

true

In practice, the maximum bid price would be found by varying the asking price in the present value model until the net present value converged to zero.

true

In purchase, the buyer will take the ownership of the asset and the seller will lose the ownership.

true

In the context of profitability, an investment is acceptable if the Net Present Value is zero or greater.

true

In the context of profitability, an investment is not acceptable if the discount rate is greater than the Internal Rate of Return.

true

Income taxes due on the closing balance sheet should come directly from that year's income statement

true

Increasing a firm's assets can increase profitability.

true

Information Flows are information about past, present, and expected business performance comes in part from a financial accounting system that reports the firm's profitability, liquidity, and solvency positions.

true

Interest is compensation for foregone investments or consumption.

true

Investing in more risky enterprises will help reduce risk in financial decisions.

true

It is important to include non-interest costs when calculating the decision criteria to compare loans.

true

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between investment A and investment B is -1, it is possible to combine investment A and investment B in a way that will eliminate all risks.

true

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between investments A and investment B is 1, diversification does not provide risk reduction, only risk averaging.

true

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between the returns of two investments is less than zero, then investing in 1 can reduce risk and increase expected returns.

true

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. If the correlation between to investments is equal to 1, diversification does not provide risk reduction, only risk averaging.

true

Terminal Value is the value of an investment at the end of the planning horizon

true

Terminal Value is the value of an investment at the end of the planning horizon.

true

The APR can be the same as the effective rate.

true

The APR is calculated after the actuarial rate.

true

The Add-on method is a method of computing interest, with which the interest is calculated on the original loan for the entire period of the loan.

true

The Market Value of any contract is the present value of the remaining payments discounted at the market rate.

true

The Net Cash Flow is calculated as Cash Revenues minus Cash Expenses minus the marginal tax rate times the taxable income

true

The Net Cash Flow is calculated as the after-tax net returns plus the annual depreciation multiplied by the marginal tax rate

true

The Net Present Value is an investments profit over the required return to capital.

true

The Net Present Value represents the investment profit over the required return on capital.

true

The Tax savings from Depreciation is added to the cash flows when calculating the NPV using the component method

true

The USPV factor assumes a finite number of periods

true

The Variance of a portfolio can be measured with p12V1+p22V2+2p1p2S1S2y12.

true

The actuarial rate can be the same as the APR.

true

The additional risk and loss in liquidity can outweigh the potential gains from leverage.

true

The availability of land-related resources, such as water, minerals, oil, and buildings, as well as conservation practices and recreational uses, may influence land values and the land investment decision.

true

The bond market trades debt securities with maturities more than 1 year.

true

The book value of a contract is the present value of the remaining payments of a contract discounted at the contractual rate

true

The conversion period is the period of time that principal accrues interest before interest is added to the principal

true

The conversion period is the time that principal accrues interest is added to principal.

true

The economic trade-off: greater expected profits require greater risk.

true

The effective rate is calculated after the APR.

true

The four different types of leasing arrangements discussed in this lecture are operating leases, custom hiring, capital lease, and leveraged leasing.

true

The future value will be greater if the interest rate in a uniform annuity is greater, holding everything else constant.

true

The future value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.

true

The interest payment is always higher for a fully amortized loan vs. an equal principal loan.

true

The maximum bid price of land can be found by setting the NPV equal to zero and solving for the initial cost of the land.

true

The maximum bid price of land is the most one can pay for an acre of land sand still be a profitable investment.

true

The maximum bid price would allow the investor to earn the rate-of-return stipulated by the discount rate, given data about all of the other factors.

true

The money cost of borrowing is the difference between the total money that the borrower receives from the loan (sometimes different from the total loan) and the total money paid to retire the loan.

true

The optimal leverage position of farmers who are more risk averse will be lower than for farmers who are less risk averse, holding everything else constant

true

The present value of a single sum can be found with V0=VN(1+r)^-N. V0 is the present value, VN is the future value in N periods, r is the rate, and N is the number of periods.

true

The present value of an annuity can be calculated by finding the present value of each sum of money in the annuity and adding the respective present values together.

true

The present value will be greater if the number of payments in a uniform annuity is longer, holding everything else constant.

true

The risk in financial decisions can be reduced if a realistic financial plan is created.

true

The sleep quotient states, "if you cannot rest easy with the current debt load, don't take on additional debt."

true

The standard deviation is the amount of dispersion or variation about the expected value

true

The terminal value that should be used in calculating depreciation for capital budgeting is zero

true

The total loan payment is constant for fully amortized loans

true

The two reasons why we cannot accept all profitable investments include mutually exclusive investments and capital rationing.

true

The uniform series future value factor [USFV(r,N)] is based on end of period cash flows. With r being the rate and N being the number of periods.

true

The uniform series future value factor [USFVr,N] is based on end of period cash flows.

true

There is a 68% chance that profits will be between one standard deviation above and one standard deviation below the mean.

true

There is a 95% chance that profits will be between two standard deviations above and two standard deviations below the mean.

true

There is an inverse relationship between bond prices and interest rates

true

Total farm risk is equal to the business risk plus financial risk.

true

Trade-Off Theory is a conceptual approach explaining the capital structure of business. It says that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits.

true

Uncertainty in marketing decisions depends on the price of outputs and advertising and market strategies of competitors.

true

Unpredictable fluctuations in cash flows and investment opportunities are uses of liquidity.

true

Unused credit increases liquidity, but reduces returns.

true

Use the real discount rate to appropriately account for inflation when calculating the annuity equivalent for an investment.

true

When calculating IRR with a trial and error process, discount rates should be raised when NPV is positive

true

When calculating IRR with a trial and error process, discount rates should be raised when NPV is positive.

true

With compounded interest each time interest is paid, it is added to or compounded into the principal and earns interest over the life of the loan

true

With unrestricted access to equity and debt, firms should choose the leverage that gives the lowest cost of capital

true

With unrestricted access to equity and debt, firms should choose the leverage that gives the lowest cost of capital.

true

Yield is calculated as the discount rate that makes the present value of cash inflows equal to the present value of cash outflows.

true

Returns to Assets is a measure of profitability used before interest is paid to a firm's lenders and before any withdraws or retained earnings are claimed by the firm's owners. The return of assets is measured by projecting the expected payment floe for the investment without deducting any charges for interest or loan repayments. Payments then are discounted to a present value, using a ____ of the firm's debt and equity capital as the discount rate

weighted average cost

Given the following information : Nominal Initial Cost = $30,000; Nominal Before-tax Net Return = $8,000 Marginal Tax Rate = 10%; Required rate of return = 10% Real Terminal Value = $0; Investment Life = 5 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 15 years and the inflation rate is 4%. (i) What is the annual depreciation expense? a. $2,000 b. $2,080 c. $6,000 d. $6,240 (ii) What are the tax savings from depreciation? a. $250 b. $160 c. $200 d. $80

i:A-$2000 ii:C-$200

With _______, each asset is represented at the ______, while with ______, assets are valued at their______.

market valuation/ current fair market value/ cost-basis valuation/ original cost plus accumulated depreciationX cost-basis valuation/ current fair market value/ fair valuation/ original cost plus accumulated depreciationX

Required Rate-of-return (RRR) is the _____ expected yield by investors requires in order selecting a particular investment.

minimum

Required Rate-of-return (RRR) is the _____ expected yield required by an investor before being willing to select a particular investment.

minimum

As the degree of sensitivity of a project to a single variable rises, the

more attention management should place on accurately forecasting the future value of that variable

As the degree of sensitivity of a project to a single variable rises, the:

more attention management should place on accurately forecasting the future value of that variable.

Agricultural Sectors are sectors comprise establishments primarily engaged in growing crops, raising animals, and harvesting fish and other animals from a farm, ranch, or their ______.

natural habitats

The preferred technique for evaluating most capital investments is

net present value

We always use the ___________ discount rate to calculate the NPV when using nominal cash flows.

nominal

In order to account for inflation, we use ___________ instead of ____________ when we calculate the NPV and nominal cash flows are used.

nominal discount rate/real discount rate

A rancher is planning on purchasing additional raw land to expand his operation. Assume that the marginal tax rate is 9%. Assume further that IRS will allow the investor to depreciate machinery investments using straight-line over 12 years. If the initial cost of an investment is $63,000. What is the annual depreciation expense for tax purposes?

none

A rancher is planning on purchasing addition raw land to expand her operation. Assume that the marginal tax rate is 11%. Assume further that IRS will allow the investor to depreciate machinery investments using straight-line over 10 years. If the initial cost of an investment is $67,000. What is the annual depreciation expense for tax purposes?

none of these answers are correct

The ____________ is usually a short-term rental arrangement (hourly, daily, weekly, monthly) in which the rental charge is calculated on a time basis.

operating lease

Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.

ordinary annuities; annuities due

An annuity stream where the payments occur forever is called a(n):

perpetuity

Which of the following is not a liability?

prepaid expenses

Discounting is the process of finding ____ values.

present

Discounting is the process of finding _____ values.

present

Discounting is the process of finding ______ values?

present

Discounting is the process of finding ________ values.

present

Discounting is the process of finding_____ values

present

Which of the following are significant tools of financial management?

Cash Flows/ Information Flows/ Strategic Management/ Capital Budgeting

_________ is the period of the time that principal accrues interest is aded to principal

Conversion period

The process of finding present values from future payments is often referred to as _________. it is the opposite of the ________ processes used to determine future values.

Discounting, compounding

Life insurance companies do not make loans to farmers.

Suppose the return on investment A is greater than the return on investment B and the Variance of the return on investment A is greater than the variance of the return on investment B. The portfolio mix does not depend on the risk return preference of the investor.

FALSE

Capital budgeting is a chronological overview of expected cash income and expenses over a given period of time.

False

Cash flow budgeting is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization structure.

False

Cash flows stated in nominal dollars over time cannot be converted to real dollars

False

Cash flows stated in real dollars over time can be converted to nominal dollars; however, cash flows stated in nominal dollars over time cannot be converted to real dollars.

False

Cash flows stated in real dollars over time cannot be converted to nominal dollars

False

Ceteris paribus, an increase in interest rates increases investment spending.

False

Changes in collateral values are not important when determining uncertainty in financial decisions.

False

Choice of discount rate is controlled by the financial market.

False

Compound Interest means each time interest is paid, it is added to or compounded into the principal but does not earn interest.

False

Compound interest means each time interest is paid, it is added to or compounded into the principal but does not earn interest.

False

Interest on a business loan is not tax deductible

False

Interest payments on a fully amortized loan increase over the life of the loan.

False

Interest payments on a fully amortized loan stay constant over the life of the loan.

False

Nominal cash flows can be discounted by either a nominal discount rate or a real discount rate. However, real cash flows must be discounted by a real discount rate only

False

Nominal cash flows can be discounted by either a nominal discount rate or a real discount rate. However, real cash flows must be discounted by a real discount rate only.

False

Nominal cash flows can be discounted bySu either a nominal discount rate or a real discount rate. However real cash flows can be discounted by a real discount rate only.

False

One of the capital budgeting methods is the component method. in this method we calculate net cash flow for each period and then calculate the NPV for the investment.

False

Payback period is the time span needed to make an appropriate decision for the first period (the amount of time an organization will look into the future when preparing a strategic plan.)

False

People use money to invest in real goods and financial goods only.

False

Principal payments on a fully amortized loan decreases over the life of the loan.

False

Principal payments on a fully amortized loan stay constant over the life of the loan.

False

Production and marketing are the only sources of risk.

False

Production management involves the acquisition and use of financial resources

False

Profitability cannot be measured

False

Quantities of outputs depend on credibility.

False

Real prices are the prices that do not reflect today's purchasing power

False

The expected value is found by summing the value of all events

False

The maturity of debt securities traded in the money market is more than 1 year.

False

FFSTF

Farm Financial Standards Task Force

_______ refers to the fir,s capacity to generate cash quickly and efficiently to meet its financial commitments as they fall due

Liquidity

A discount rate must account for the followings except:

Management Fee

Financial management involves the acquisition and use of financial resources and the protections of equity capital from all kinds of risk.

Life insurance companies make loans to farmers

Proforma statements can be used to create a business plan

Should a firm invest in projects with NPV = $0?

The firm is indifferent between accepting or rejecting projects with zero NPVs

Principal payments on a fully amortized loan increase over the life of the loan.

True

Principal payments on a fully amortized loan increases over the life of the loan

True

Pro forma statements can be used to create a business plan.

True

A secondary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.

True

Accounting tools consist of the balance sheet, income statement, and cash flow statement.

True

Farm land is considered as a non-depreciable asset.

True

Inflation is the increase in the general price level.

True

Net Cash flow is calculated as cash revenues minus cash expenses minus the marginal tax rate times the taxable income

True

Net Cash flows is calculated as the after-tax net return plus the annual depreciation multiplied by the marginal tax rare

True

Nominal Prices are the prices as you observe them (actual amount of U.S. currency (or other types of currency) making up the cash flows).

True

Nominal Prices are the prices as you observe them.

True

Nominal cash flows should be discounted with the nominal discount rate.

True

Nominal prices are the prices as you observe them

True

Suppose an investment has a life of 3 years, an after-tax discount rate of 10% and net returns of $12,800 per year. Te present value of the after-tax net returns is $31,832

True

Suppose an investment has a life of 4 years, an after-tax discount rate of 12%, and net returns of $15,000 per year. The present value of the after-tax net returns is $45,560.

True

The Net Present Value is an investments profit over the required return to capital.

True

The Net Present can be calculated as the PV(Cash Inflows)- PV(Cash Outflows) where cash flows are discounted at the required rate of return on an investment

True

The USPV factor assumes a finite number of periods

True

The USPV factor assumes a finite number of periods.

True

The optimal leverage position of farmers who are more risk averse will be higher than for farmers who are less risk averse, holding everything else constant.

false

The outcome of decisions is independent on future events, and time and risk must be considered.

false

The present value is lower if one dollar in the future is discounted annually rather than monthly, holding everything else constant.

false

The combination of debt and equity reflects the firm's capital structure or _____________?

financial leverage

Risk management methods can be categorized in terms of the _______, ________, and _________ organizations of farm businesses.

production, marketing, financial

Goals are expressed as a goal or utility function containing three elements. What are the three elements?

profitability liquidity risk

Compounding converts a present amount into a equivalent future amount.

true

Constant-growth Series indicates the payment series experience a constant rate of growth.

true

Costs of capital are the costs a firm incurs for its financial capital. Financial capital, in turn, refers to the debt and equity claims making up the liabilities side of the firm's balance sheet.

true

Credit Reserves become more valuable as credit is used

true

Deflation is the decrease in the general price level

true

It is leverage that has an impact on returns and risk relative to the profit margin, business risk and taxes.

true

Land is a durable, immobile resource. With proper maintenance, land's basic properties do not change over time, or if they do change, they change so slowly that land is considered to have an infinite life.

true

Land is an asset that does not depreciate.

true

Leverage has little or no effect on business risk.

true

Leverage is found by dividing debt by equity.

true

Leverage that is between .33 and 1 is considered satisfactory.

true

Leverage that is greater than 1 is considered unfavorable.

true

Leverage that is less than .33 is considered favorable.

true

Leverage will increase profitability as long as rate of return on assets is greater than the cost of debt

true

Loan Payment includes a real return and an inflation premium.

true

Net returns to land do not have an inflation premium but are expected to increase at the rate of inflation.

true

Nominal prices are the prices as you observe them

true

One of the key components of financial investing is that there is no expected high return without bearing high risk.

true

Points are the percent of principal paid as prepaid interest.

true

Profit of capital investments is often measured as discounted values (PV) of projected earnings.

true

Rate of inflation is the percentage rate of increase in inflation

true

Real cash flows should be discounted by a real discount rate only.

true

Remaining-Balance Method is a method of computing interest, with which, interest is calculated by multiplying the principal outstanding by the contractual rate for the period in question.

true

Risk Aversion refers to the subjective tendency of investors to avoid unnecessary risk.

true

Risk is often measured as the standard deviation of the returns while profits are measured as the expected values of returns

true

Simple interest mean only the original principal, or amount of money borrowed, earns interest over the life of the transaction

true

Stock investors are in a residual position in regards to claims on income and assets.

true

The price of bonds goes up as interest rates go down.

true

The price of the bond and the interest rate are inversely related

true

The principal is the loan principal minus prepaid interest that was financed.

true

The rate of return on assets is equal to the income before interest and taxes divided by assets.

true

The rate of return on equity is equal to the income after interest and taxes divided by equity

true

The real prices of commodities may decline over time due to more efficient production technology.

true

The real prices of commodities may decline over time due to the increase of imports from other countries.

true

When calculating the real annuity equivalent we use the following formula to calculate the real discount rate: r*=[(1+r)/(1+If)]-1.

true

When choosing the best mutually exclusive investment you select the investment with the highest annuity equivalent.

true

When comparing loans based on the least cost when the conversion periods are different, one should compare the effective rates of the loans.

true

When comparing loans based on the least cost when the conversion periods are the same, one can compare the actuarial or annual percentage rate.

true

When finding an annuity equivalent of a capitam investment and inflation is assumed to be zero, we use the formula Ae= NPV/[USPVr%,N].

true

When finding the prepaid interest the points are multiplied by the loan principal.

true

When the rate of return on assets is equal to the cost of debt and leverage increases the profits stay constant.

true

When the rate of return on assets is greater than the cost of debt and leverage increases the profits increase as well.

true

The cash flow budget is a projection of all the cash transactions relating to the business that occur during the accounting period, usually one year.

True

The conversion period is the period of time that the principal accrues interest before interest is added to principal

True

The net present values an investment profit over the required return to capital

True

nominal cash flows should be discounted with the nominal discount rate

True

the price of bond and the interest rate are inversely related.

True

The higher the preference or enjoyment, the __________ utility.

`higher

The nominal interest rate doe not account for the loss of value due to inflation

false

Buying disease resistant seed varieties can reduce risk in production decisions

true

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $35,000. The loan will be fully amortized in 3 years at 11%. Marginal tax rate is 20%. What is the value of loan payment per period?

$14,322.46

Consider a bond with a Par Value of $1000. It pays a coupon of 12% and the coupon is paid annually. It matures in 10 years calculate the market value of the bond if market rate is 10%

$1,122.89

Consider a bond with a par value of $1,000. it pays a coupon of 12% and the coupon is paid annually. it matures in 10 years. Calculate the market value of the bond if the market rate is 10%

$1,122.89

If you borrow $8,000 and pay it back in 9 equal annual payments (principal and interest) at 7% interest. What are the annual payments?

$1,228

A farmer is taking out a 30-year loan of $35,000 with equal principal annual payments and an interest rate of 10%. Inflation rate is expected to be 3% per year. What is the interest payment in the 6th year?

$2,916

Olivia borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is: Pick the closest answer.

$1,482 Solution: PV 4,500 FV 0 N 4 I/Y 12 → PMT = -$1,481.55

The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is: Pick the closest answer.

$1,558.14 Solution: use the opportunity cost of 4% as the discount rate PMT -350 N 5 I/Y 4 FV 0 → PV = $1,558.14

What would you be willing to pay for an annuity that paid you $175 at the end of each of the next 20 years? Assume savings account pays 8% compounded annually.

$1,718

Suppose you are considering the purchase of a new truck for $55,000. it can be financed over 10 years. Calculate the quarterly payments if the annual interest rate is 6% compounded quarterly and the payments are uniform.

$1,838.49

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 7%?

$10,714.29

If you can earn 8% on your money, how much should you pay today for an investment that promises to pay $225 in three years (Market Value)?

$178.61

Suppose that the marginal tax rate is 20%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $7,500 per year but it will cost $1,500 a year for maintenance. What is the annual after-tax net return generated by this investment for each year?

$4,800

Suppose you are considering the purchase of a special livestock trailer for $15,000. It can be financed over five years with no down payment. Calculate the monthly interest rates (yield) if the monthly payments are $350.00

1.18%

If a farmer is granted a loan for $3,000, with a 6 years of fully amortized monthly payments of $75. What is actuarial rate?

1.82%

The yield on a bond is 6% and inflation is expected to be 3% Calculate the real interest rate in the bond

2.91%

calculate the coefficient of variation : profit level - 1092, 322, -687

3.6581

At the beginning of the year, Joseph Farmer purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment is $25,000. The equipment is expected to be used for 4 years and then sold for $4,000. Depreciation expense to be reported for the second year using the double-declinging balance method is closest to:

5,250X

Consider a bond with a par value of $1,000. It pays a coupon of 12% and the coupon is paid annually. It matures in 8 years. What is the yield on the bond if the price of the bond is $1091.33

8.5%

What is SWOT an acronym for?

A firm's strength, weakness, opportunities, and threats

The price of outputs do not depend on

Advertising

Budgeting methods are used to evaluate the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, ________ budgets, and capital budgets.

D; cash flow

Finance function comprises

D; procurement and efficient use of funds

The four stages that a farm business passes through its life cycle include

E; both a and c establishment and consolidation

________ represents the claims of owners of the assets.

EquititesX

You plan to save $6,000 per year for the next 45 years. (Your first deposit will be at the end of the year - ordinary annuity.) What interest rate do you need to earn to reach your goal of $2 million?

I/Y= 7.52% (N=45, PV=0, PMT=-6,000, FV=2,000,000)

The internal rate of return (IRR): I. rule states that a typical investment project with an IRR that is less than the required rate should be accepted. II. is the rate generated solely by the cash flows of an investment. III. is the rate that causes the net present value of a project to exactly equal zero. IV. can effectively be used to analyze all investment scenarios.

II and III only

In United States, the consumer price index and gross national product are commonly used measures to measure ______.

Inflation

The ____________ is the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, it is the percentage taken from your next dollar of taxable income above a pre-defined income threshold.

Marginal Tax Rate

You can set aside $5,000 per year at 8%. How long until you obtain $1,000,000?

N=36.8 years (I/Y=8, PV=0, PMT=-5,000, FV=1,000,000)

ANNUITY PAYMENT: You borrow $30,000 for a new truck at 8% interest for 3 years. What is your monthly truck payment?

PMT: $940.09 (N=36, I/Y=0.7273, PV=30,000, FV=0)

Discounting is the process of finding ____ values.

Present

"Income Generating," "Cost Reduction," and "Maintenance and Replacement" are categories of alternative investments.

True

"Pro forma" refers to setting up accounting information in advance

True

The __________ method determines the size of annual annuity for the economic life of the investment that could be provided by a sum equal to the present value of its projected cash flow stream, given the firm's cost of capital.

annuity equivalent

Which of the followings is not included in closing costs?

coupon payments

Custom harvesting of crops, custom applications of chemicals and fertilizer, and custom or contract feeding of livestock in commercial feedlots are common examples of ___________.

custom hiring

A decrease in leverage will increase business risk.

false

Leverage is found by multiplying debt and equity.

false

The effective rate is calculated before the APR.

false

Strategic Management Process has six interrelated steps: defining and developing a firm's mission; ______; assessing the firm and evaluating the environment; building strategy; implementing strategy; evaluating performance and implementing any corrective actions.

formulating objectives

Expansion in farm size and income-generating capacity for most agricultural units requires a/an __________ in the land acreage under the manager's control.

increase

A middle ground is reflected by the multiple financial goals of __________ profitability, ___________ risk and ____________ liquidity.

increasing, reducing, providing

The basic future and present value equations contain four variables. Which one of the following is not included?

inflation rate

What is the correct order of steps to compare loan alternatives?

layout cash flows, calculate the actuarial rate, layout cash flows, and calculate the effective rate

Which way can be used to increase liquidity?

lengthening the maturity on long-term debtX

A/An _______________ for land is the purchase price that would yield a break-even or zero net present value for a land investment.

max bid price

Rational business persons are assumed to _________ profits obtained from production of goods and services.

maximize

Rational consumers are assumed to _________ the utility of consuming goods and services.

maximize

Collecting relevant information is important in capital budgeting. Which of the following is least important?

name of your bank

Collecting relevant info. is important in capital budgeting. Which of the following is least important?

name of your bank if not an option then cash expenses

When we calculate the annuity equivalent, it is best to use a _________ discount rate.

real

Which is not considered as depreciable assets?

real estateX

Accumulated Depreciation is

sum of depreciation claimed on tax returns

Internal Rate-of-return (IRR) is the yield of an investment, i.e., the rate of interest that equates the net present value of the projected series of cash flow payments to ____.

zero

Internal rate-of-return is the yield of an investment, i.e, the rate of interest that equates the net present value of the projected series of cash flow payments to_______

zero

Internal rate-of-return is the yield of an investment, i.e., the rate of interest that equates the net present value of the projected series of cash flow payments to ________.

zero

Internal Rate-of-return (IRR) is the yield of an investment, i.e., the rate of interest that equates the net present value of the projected series of cash flow payments to ____.

zero.

In general, the cost of ________ is higher than the cost of _________.

equity/debt

As time passes, the financial gap (net returns to land minus the loan payment) can disappear.

true

Assume that the nominal after-tax net return for year 1: $53, year 2: $55, year 3: $58. The after tax risk adjusted discount rate is 8%, the growth rate is 2%, and the inflation rate is 3%. What is the present value of the after-tax net return?

$142.27

What are the four stages of the life cycle?

establishment, growth, consolidation, and transfer

_________________ is the cost of using the funds of creditors and owners.

Cost of Capital

What does PREM stand for?

Risk Premium

A tractor with a cost of $45,000 has a depreciable life of 10 years. There is a marginal tax rate of 25%, an interest rate of 10%, and a pretax discount rate of 12%. What is the tax savings from depreciation?

$1,125

If you borrow $12,000 and pay it back in 11 equal annual payments (principal and interest) at 11% interest. What are the annual payments?

$1,934

What would you be willing to pay for an annuity that paid you $450 at the end of each of the next 6 years? Assume savings account pays 10% compounded annually.

$1,960

What would you be willing to pay for an annuity that paid you $450 at the end of the next 6 years? Assume savings account pays 10% compounded annually?

$1,960

What is the real price of an apple in 5 years if the nominal price is $1.16 and the inflation is 3%

$1.00

What is the real price of an apple in 5 years if the nominal price is $1.16, and the inflation rate is 3%?

$1.00

What is the nominal price of an apple in 10 years if the real price is 1$, and the inflation rate is 3%?

$1.34

What is the nominal price of an orange in 5 years if the real price is $1.50, and the inflation rate is 4%

$1.82

Suppose a parcel of land promises to return $750 per acre. What is the capitalized value of the land if the interest rate is 7%?

$10,714.29

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 7%?

$10,714.29 Calculation: (1/.07)*750

What would you be willing to pay for an annuity that paid you $150 at the end of each of the next 15 years? Assume savings account pays 12% compounded annually.

$1022

How much money would you have in your bank account in 11 years if $800 is deposited quarterly at the end of each quarter over the next 11 years? Suppose that savings account pays 18% compounded quarterly.

$105,531.07

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 13.60% One annuity pays $9,700 on the first day of each year for 36 years. How much does the second investment pay each year for 36 years if it pays at the end of each year?

$11,019.20

Suppose you have been hired by Aggie-Business. They are willing to pay you a signing bonus of $2,000 per year starting in one year for each of the next seven years (7-year annuity) or a lump-sum bonus today of $11,000. Suppose you can invest your money at 6%, calculate the Market Value of the annuity and indicate if you should take the lump-sum bonus or the 7-year annuity?

$11,165; accept the annuity

Assume that the real net return in the fourth year is $100 with a growth rate of 4%, inflation rate of 3%, and a tax rate of 6%. What is the nominal net return in the fourth year?

$112.55

Assume that the nominal after-tax net return for year 1: $45, year 2: $47, year 3: $49. The after tax risk adjusted discount rate is 6%, the growth rate is 3%, and the inflation rate is 4%. What is the present value of the after-tax net return?

$125.42

How much money would you have in your bank account in 20 years if $400 is deposited at the end of the year for each of the next 20 years? Suppose that savings account pays 5% compounded annually.

$13,226.38

$130.137.18

If you can earn 12% on your money, how much should you pay today for an investment that promises to pay $150 in one year (Market Value)?

$133.93

With an initial cost present value of $850,000 after-tax net present value of $764,500, a present value of tax savings from depreciation of $225,000 and a present value after-tax terminal of $575. What is the net present value?

$140,075

Given the following information: Annual loan payment = $44,100 Number of remaining periods = 4 Interest rate = 9% What is the book value of the loan?

$142,659.09

Suppose that a $100/ acre loan is expected to be fully amortized at 15% over 35 years. Calculate the amount of loan payment per period.

$15

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 5%?

$15,000

Suppose a parcel of land promises to return $750 per year per acre. What is the capitalized value of the land if the interest rate is 5%?

$15,000 Calculation: (1/.05)*750

A combine with a cost of $150,000 has a depreciable life of 15 years. There is a marginal tax rate of 20%, an interest rate of 8%, and a pretax discount rate of 10%. What is the tax savings form depreciation?

$2,000

Jaime and Tryion purchased a new combine for $56,000. Assume a 7-year useful life and no salvage value. Calculate the depreciation for year 7 using the sum-of-the-years'-digits

$2,000

Jamie and Tryion purchased a new combine for $56,000. Assume a 7- yea useful life and no salvage value. Calculate the depreciation for year 7 using the sum-of-the-years'-digits.

$2,000

If you borrow $15,000 and pay it back in 13 equal annual payments (principal and interest) at 9% interest. What are the annual payments?

$2,004

If you borrow $15,000 and pay it pack in 13 equal annual payments at 9% interest. What are the annual payments?

$2,004

if you borrow $15,000 and pay it back in 13 equal annual payments (principal and interest) at 9% interest. What are the annual payments?

$2,004

What is the future value of $1,000 today if it draws interest at 8% compounded annually for 10 years?

$2,159

How much money will be in a savings account in 10 years if $1,000 is deposited today and it earns 8% compounded quarterly?

$2,208.04 Calculation: N: 40 %: 2 PV:1000 PMT:0 FV:?

How much money will be in a savings account in 10 years if $1,000 is deposited today and it earns 8% compounded monthly?

$2,219.64 Calculation: N: 120 %: .6667 PV: 1000 PMT: 0 FV:?

Calculate the present value of a retirement fund if you put $1,750 in your saving account at the beginning of each of the next 35 years? Assume that your savings account pays 8% compounded annually.

$22,077.13

Calculating the present value of a retirement fund if you put $1,750 in your savings account at the beginning of each of the next 35 years? Assume that your savings account pays 8% compounded annually

$22,077.13

$22,500

If you invest $200 and earn a rate if return of 10% how much money will you have in 1 year?

$220

How much money will be in a savings account in 10 years if $1,000 is deposited today and it earns 8% compounded monthly?

$2219.64

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of the month for the next 35 years? Assume that your savings account pays 8% compounded monthly.

$246,388.34

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the end of the month for the next 35 years? Assume that your savings account pays 8% compounded monthly.

$246,388.34 Calculation: N: 408 %: .6667 PV:? PMT: 1750 FV:0

Suppose that a $9,800/ acre loan is expected to be fully amortized at 22% over 5 years. Calculate the amount of loan payment per period.

$3,422

Suppose you are considering the purchase of an investment. The net returns for this investment is $5,000. Given the marginal tax rate is 28% what is the after-tax net returns?

$3,600

Suppose you are considering the purchase of an investment. The Net Returns for this investment is $5,000. Given the marginal tax rate is 28%, what is the after-tax net returns?

$3,600 Response Feedback: Calculation: 5000-(5000*.28)

What is the nominal price of an apple in 15 years if the real price is $2.5, and the inflation rate is 2%?

$3.36

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount $72,000 -the loan will be fully amortized in 3 years at 13% -marginal tax rate is 18% What is the value of a loan payment per period?

$30,493.58

What is the npc of an investment that costs $175, promises to pay $250 in two years, and the rate of return on comparable investments at 10%

$31.61

A farmer is taking out a 10-year loan of $25,000 with fully amortized monthly payments with an interest rate 12%. Inflation rate is expected to be 4% per year. What is the per period payment?

$358.68

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount $88,000 -the loan will be fully amortized in 3 years at 12% -marginal tax rate is 20% What is the value of a loan payment per period?

$36,638.71

Given the following information: Profit Levels Probability of occurrence Optimistic: $683.00 0.1 Most Likely: $103 0.6 Pessimistic: -$519 0.3 Calculate the Standard Deviation

$364.92

How much money will be in a saving account in 15 years if $150 is deposited today and it earns 6% compounded quarterly?

$366.48

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded quarterly?

$366.48

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded monthly

$368.11

How much money will be in a savings account in 15 years if $150 is deposited today and it earns 6% compounded monthly?

$368.11

An investor wants to do capital budgeting for his new investment project. He has the following information: IRS will allow the investor to depreciate the investment using straight-line over 10 years. The marginal tax rate will be 20% over the next 5 years & it will be 15% from the 6th to the 10th year. The investor expects that the terminal value for the investment is $40,000 at the end of 6 years.(a 6-year project) What is the after-tax terminal value of this investment if the initial cost is $60,000?

$37,600

Consider a bond with a par value of 41,125. it pays 8% annual and the coupon is paid semiannual. It matures in 10 year. What is the coupon payment.

$45

Consider a bond with a par value of $1,125. It pays a coupon of 8% (annual) and the coupon is paid semiannual. It matures in 10 years. What is the coupon payment?

$45 Calculation: 1125*4%= 45

A farmer has been given the opportunity to become a part owner in a local fertilizer business. If the farmer becomes an owner of the fertilizer business, he will receive $5,000 each year from the firm's profits. In addition, the farmer will receive a discount on fertilizer and he believed discount will reduce his fertilizer costs by $2,000 per year. The farmer plans to retire in 20 years and thinks he can sell his equity in the theta. business for $60,000. (i) Calculate the market value of this investment of the market rate of return on comparable investments is 15% (ii) calculate the net presents value if the price of this investment is $30,000 and the farmer's required rate of return is 15% (discount rate) and state if this investment is acceptable (iii) calculate the yield on this investment if the price of this investment is $30,000 and state if this investment is acceptable if the required rate of return is 15%

$47,481 $17,48; acceptable 23.7%; acceptable

Assume that the real net return in the second year is $45 with a growth rate of 2%, inflation rate of 3%, and a tax rate of 6%. What is the nominal net return in the second year?

$47.74

Assume that the marginal tax rate is 9%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 12 years if the initial cost of an investment is $63,000. What is the tax saving value for each year?

$472.5

How much interest is gained if $250 is deposited in your bank account at the end of the year for each of the next 7 years? Savings account pays 8% compounded annually.

$480.70

How much interest is gained if $250 is deposited in your bank account at the end of the years for each of the 7 years? savings account pays 8% compounded annually.

$480.70

What is the nominal price of an orange in 25 years if the real price is $3, an the inflation rate is 2.5%

$5.56

Suppose you are considering the purchase of an investment. The Net Returns for this investment is $5,000. Given the marginal tax rate is 28%, What is the pre-tax net returns?

$5,000

Suppose you are considering the purchase of an investment. The net returns for this investment is $5,000. Given the marginal tax rate is 28%, what is the pre-tax net returns?

$5,000

Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $8,000 per year but it will cost $2,000 a year for maintenance. What is the annual after-tax net return generated by this investment for each year?

$5,100 Response Feedback: Calculation: 6000-(6000*.15)

$5,250

Assume that the marginal tax rate is 9%. Assume further that IRS will allow the investor to depreciate the investment using straight-line over 12 years. If the initial cost of an investment is $63,000, What is the annual depreciation expense for tax purposes?

$5,250 Response Feedback: Solution: 63000/12

A bank has agreed to lend you $610,900 for a home loan. The loan will be fully amortized over 60 years at 10.59%, with .56 points. The loan payments will be monthly. The closing cost is estimated to be $3,712.

$5,464.27

How much money will be in a savings account in 20 years if $750 is deposited today and it earns 10% compounded monthly?

$5,496.06: Calculation: N: 240 %: .833 PV: 750 PMT: 0 FV:?

An investment has a purchase price of $35,000. The bank is willing to loan this farmer $27,000. The terminal value of this investment is $5,000. There is a marginal tax rate of 20%, a growth rate of 3%, and a discount rate of 10%. What is the after tax terminal value of this investment?

$5,600

Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchase, the current operating expenses and $1,200. What is the annual pre-tax net return generated by this investment for each year?

$5,700

Suppose that the marginal tax return is 15%. If a farmer decides to purchase a new tractor. It will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchases, the current operating expenses are $1,200. What is the annual pre-tax net return generated by this investment for each year?

$5,700

Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a new tractor, it will increase the operating receipts $6,800 per year but it will cost $1,100 a year for maintenance. Before the purchase, the current operating expenses are $1,200. What is the annual pre-tax net return generated by this investment for each year?

$5,700 Calculation: 6800-1100

Consider a bond with a Par Value of $1125. It pays a coupon of 8% and the coupon is paid monthly. It matures in 8 years. The market rate is 10%. Calculate the book value of the bond.

$5,898.86

Consider a bond with a par value of $1,125. It pays a coupon of 8% and the coupon is paid monthly. It matures in 8 years. The mature rate is 10% Calculate the book value of the bond.

$5,898.86

$56,556.08

What is the present value of $1,000 that is to be received 5 years from today and interest rates are 12% compounded annually?

$567

Given the following loan information: Annual loan payment = $18,000 Number of remaining periods = 4 Interest rate = 10% What is the book value of the loan?

$57,057.58

A rancher borrowed money to purchase a new trailer 2 years ago. The annual payment is $8,700, the interest rate is 8% and there are 10 years left on the loan. How much does the rancher still owe on the loan?

$58,377.71

If land was purchased for $500 per acre and the real price of land increases at 6% each year. The marginal tax rate is 10% and the inflation rate is 4%. The land will be sold in three years. What will the real land price be in three years?

$595.51

When you retire, you want ti have $875,00 saved. If you plan to retire in 35 years, and you can receive 7% interest annually o a savings account, What is the Fixed amount you have to save each year?

$6,330

When you retire, you want to have $875,000 saved. If you plan to retire in 35 years, and you can receive 7% interest annually on a savings account. What is the fixed amount you have to save each year?

$6,330

Suppose that Jim plans to borrow money for an education at Texas A&M. Jim will need to borrow $25,000 at the end of each year for the next five years (total=$125,000). AggieBank agrees to lend him the money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. However, at the end of the fifth year, jim agrees to pay off the loan by borrowing from longhorn bank. longhorn bank will lend him the money he needs at an annual interest rate of 6%. Jim agrees to pay back the longhorn bank with 20 annual payments and the payments payments will be uniform (equal annual payments including principal and interest) (i) calculate how much money Jim has to bower at the end of 5 years to pay off the loan with AggieBank (ii) calculate the annual payment Jim must pay to the longhorn bank if the first payment is due at the end of the sixth year (one-year after borrowing the money from longhorn) (iii) calculate the total interest jim must pay because of borrowing money to attend TAMU

$6,376 $12,159 $97,360

Suppose that the initial cost of an investment is $50,000 the present value of tax saving from depreciation is $2,500 and the present value after tax terminal value is $40,000. It is expected that an investment will increase yield and thus operating receipts by $20,000 per year but it will cost $4,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 10% while the marginal tax rate over the next four years is 25%. What is the break-even price of operating receipt?

$6,481

Suppose that the initial cost of an investment is $50,000, the present value of tax saving from depreciation is $2,500, and the present value after tax terminal value is $40,000. It is expected that an investment will increase yield and thus operating receipts by $20,000 per year but it will cost $4,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 10% while the marginal tax rate over the next five years is 25%. What is the break-even price of operating receipt?

$6,481

Pasture land in the Brazos County is selling for $3,000 per acre. If the value increases 4% per year, what will the value be in 20 years?

$6,573

$6,666.67

You are comparing two investments with equal annuity payments and the same future values. Applicable discount rate is 10.3%. One annuity pays $6300 on the first day of each year for 28 years. How much does the second investment pay each year for 28 years if it pays at the end of each year?

$6,948.90

You are comparing two investments with equal annuity payments and the same future values. The applicable discount rate is 10.30% One annuity pays $6,300 on the first day of each year for 28 years. How much does the second investment pay each year for 28 years if it pays at the end of each year?

$6,948.90

A rancher borrowed money to purchase a new truck 4 years ago. The annual loan payment is $32,000, the interest rate is 4% and there are 2 years left on the loan. How much money does the rancher still owe on the loan?

$60,355.03

$8278

The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly. It deposits the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would it have had to deposit?

$83,189.29

How much money would you have in your bank account in 12 years if $800 is deposited quarterly at the end of each quarter over the next 12 years? Suppose that savings account pays 12% compounded quarterly

$83,526.72

Calculate the present value of a retirement fund if you put $1,750 in your savings account at the beginning of each quarter for the next 35 years? Assume that your savings account pays 8% compounded quarterly.

$83,670.64

$83,670.64 Calculation: N: 139 %: 2 PV:? PMT: 1750 FV: 0 +1,750

Suppose you can put your money in a savings account that pays 7%, compounded annually. How much money would you have in your savings account in 27 years if you invested $1,350 today?

$8389

How much money would you have in your bank account in 9 years if $600 is deposited monthly at the end of each month over the next 9 years? Suppose that savings account pays 9% compounded monthly.

$99,289.93

What is the NPV of an investment that costs $150 promises to pay $350 in three years and the rate of return on comparable investments is 12%

$99.12

What is the NPV of an investment that costs $150, promises to pay $350 in three years, and the rate of return on comparable investments is 12%

$99.12

What is the NPV of an investment that costs $150, promises to pay $350 in three years, and the rate of return on comparable investments is 12%.

$99.12

What is the npv of an investment that cost $150, promises to pay $350 in three years, and the ate of return on comparable investments is 12%

$99.12

A farmer is taking out a 20-year loan of $30,000 with fully amortized quarterly payments and an interest rate of 12%. Growth rate of farm returns are expected to be 4% per year. What is the per period payment?

$993.35

Calculating annual depreciation for capital budgeting using straight-line depreciation, one should use the following formula:

(Cost Basis)/Depreciable Life

Suppose Jim plans to borrow money for an education at TAMU. Jim will need to borrow $20,000 at the end of each year for the next 5 years (total=100,000). He qualifies for government loans with reduced interest rate while he is in school. He has a special arrangement with AggieBank to lend him the money at a subsidized rate of 2% over 5 years without having to make a payment until the end of the 5th year. However, at the end of the fifth year, Jim agrees to pay off the loan by borrowing from Longhorn bank with 15 annual payments and the payments will be uniform (i) Calculate how much money Jim has to borrow at the end of 5 years to pay off the loan with AggieBank. (ii) Calculate the annual payment Jim must pay to the Longhorn Bank if the first payment if the first payment is due at the end of the sixth year. (iii) Calculate the yield on this investment if the price of the investment is $30,000 and state if this investment is acceptable if the required rate of return is 15%

(i) $104,081 (ii) $12,160 (iii) $82,396

(i) $119,200 (ii) $4,200 (iii) $8,800 (iv) $28,680 (v) 24.06% (vi) 40%

An entrepreneur is offered a service contract that will cost him $600,000 initially. The contract has a 5 years of life and will generate a cash inflow of $160,000 per year. The cost of capital of this project is 12%. What's the NPV of the project? Should the entrepreneur accept the contract?

-$23,236; reject Response Feedback: Solution: NPV(12,-600000,{160000,160000,160000,160000,160000})

What is the net return if Price =200 (probability 0.6), Yield = 8 (probability 0.5) and cost = 5,200 (probability 0.6)?

-$3,600

Suppose Rock Prodigal Jones graduates from TAMU and gets a job. Suppose that he has $1,200 in disposable income that he can use to make house and car payments after all other living expenses and this is the way it will be until retirement. Rock decides to buy a new car and he will make a $400/month car payment (assume that this will be his car payment until he retires). He and his wife decide to borrow $120,000 to buy a house. The bank will lend them the $120,000 for 40 years at 6% annual interest rate using a fully amortized loan. Rock will pay back the loan with monthly payments. Rock will invest his monthly disposable income ($1,200 - car payment - house payment) in a mutual fund that promises to pay 8% annually. (Assume that Rock will put this amount in the mutual fund until he retires) (i) Calculate how much money Rock has to pay monthly on his house loan. (ii) How much money can Rock put in the mutual fund monthly after paying the car and house payment? (iii) How much will Rock have in his mutual fund at the end of 40 years when Rock plans to retire? Assume the car payment of $400/month is for 40 years. (iv) Suppose that after retirement in 40 years, Rock plans to live another 20 years. Rock will use the money he has in the mutual fund to buy a monthly annuity. That is he will give an investor the money in his mutual fund and in turn the investor will promise to pay Rock a fixed monthly amount of principal and interest. How much money will he have to live on each month assuming that the interest rate for the annuity is 5% annually? (hint: Remember that the annuity is monthly so you need to use a monthly rate)

(i) $660 (ii) $140 (iii) $487,833 (iv) $3,219

Suppose Aggie International has hired you and are willing to pay you a signing bonus. They give will give you $10,000 today or one of two other options. (i) They are willing to pay you a bonus of $1,500 per year at the beginning of the year for eight years (eight annual payments). The first bonus payment will be given today. Calculate the present value of the bonus if the discount rate is 6%. (ii) They are willing to pay you a bonus of $17,000 as a lump sum payment at the end of the 10th year. Calculate the present value of the bonus if the discount rate is 6%. (iii) If you have opportunities to invest your money at six percent, which of the following should you accept? (iv) Calculate how much you would have in your savings account in ten years if you choose the $1,500 annuity and you put the annual bonus payment in a savings account drawing 6% compounded annually.

(i) $9,874 (ii) $9,493 (iii) The lump sum today (iv) $17,682

-$23,236; reject

Suppose that Jim plans to borrow money for an education at TAMU. Jim will need to borrow $25,000 at the end of each year for the next five years= $125,000. Age bank can lend hime money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. At the end of the fifth year he agrees to pay off the loan by borrowing from Longhorn Bank at an annual interest rate of 6% and agrees to pay back that loan with 20 annual uniform payments. 1. Calculate how much money jim has to borrow at the end of the 5 years to pay off the Aggie Bank loan. 2. Calculate the annual payment Jim must pay to the Longhorn if the first payment is due at the end of the sixth year. (one year after borrowing the money from Longhorn.) 3. Calculate the total interest Jim must pay because of borrowing money to attend TAMU.

1. $127,525 2. $11,118 3. $97,360

Given the following information: Nom initial cost= $30,000 Nom Before-tax Net Ret= $8,000 Marginal tax rate= 10% Required rate of return= 10% real terminal value= $0 Investment life= 5 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 15 years and the inflation rate is 4% 1. What is the annual depreciation expense? 2. What are the tax savings from depreciation?

1. $2,000 2. $200

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount is $88,000 -the loan will be fully amortized in 3 years at 12% -marginal tax rate is 20% 1. What is the total interest payment for this loan? 2. What is the total amount of tax savings from interest on this loan?

1. $21,916.13 2. $4,383.23

A farmer expects irrigation system will increase real operating receipts by $32,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 5% and the marginal tax rate is 20% 1. What is the nominal net return at the end of year 3? 2. Calculate the nominal after-tax net return at the end of year 4.

1. $27,783 2. $27,360

Given the following information: Nom initial cost= $30,000 Nom Before-tax Net Ret= $4,000 Marginal tax rate= 15% Required rate of return= 10% real terminal value= $20,000 Investment life= 8 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 10 years and the inflation rate is 4% 1. What is the annual depreciation expense? 2. What are the tax savings from depreciation?

1. $3,450 2. $450

A farmer has been given to be a part owner is local fertilizer business. If the farmer becomes an owner of the fertilizer business, he will receive $5,000 each year from the firms profits. In additions, the farmer will receive a discount on fertilizer and he believes the discount will reduce his fert. costs by $2,000 per year. Plans to retire in 20 years and thinks he can sell equity for $60,000. 1. calculate the market value of this investment if the market rate of return on comparable invest. is 15% 2. Net present value if the price of this investment is $30,000 and the farmer's required a rate of return is 15% and state if investment is acceptable. 3. Yield on this investment if the price of this investment is $30,000 and the state if this investment is acceptable if the required rate of return is 15% 4. After the farmer has purchased part of the fert. he discovered that the decrease in fert. costs per year was on $1,000 and he only sold the business for $10,000. Given that the paid $30,000 for the business. what was the true yield?

1. $47,481 2.$17,481 ; Acceptable 3. 23.7% ; Acceptable 4. 19.21%X

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount is $88,000 -the loan will be fully amortized in 3 years at 12% -marginal tax rate is 20% 1. What is the interest payment in the 2nd year? 2. What is the principal payment in the 2d year? 3. What is the loan balance at the end of the 2nd year? 4. What is the tax saving in the 2nd year?

1. $5,944.44 2. $23,796.47 3. $32,713.13 4. $1,486.11

Given the following information: Nom initial cost= $90,500 Nom Before-tax Net Ret= $7,000 Marginal tax rate= 20% Required rate of return= 11% real terminal value= $110,500 Investment life= 5 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 12 years and the inflation rate is 5% 1. What is the annual depreciation expense? 2. What are the tax savings from depreciation?

1. $7,452 2. $1,400

A farmer is considering borrowing money from a bank. Given the following information: -initial loan amount is $52,000 -the loan will be fully amortized in 3 years at 10% -marginal tax rate is 15% 1. What is the tax saving in the 1st year? 2. What is the tax saving in the 2nd year? 3. What is the total interest payment for this loan?

1. $780.00 2. $544.35 3. $10,729.91

A farmer is thinking about investing in a center pivot irrigation system to irrigate 100 acres of land in fresno. -$175 -$300 -$10,200 -$42,000 -100 acres -5 year period of time -$20,000 -20% -15 years -$20,000 -11% capital return 1. calculate the initial cost 2. calculate the after-tax net returns 3. calculate the tax savings from depreciation 4. calculate the after-tax terminal value 5. Which discount rate should be used for calculating the NPV of the investment?

4 out of 10 1. $52,200 2. $14,000 3. $382 4. $30,744 5. 11.6%

A farmer is thinking about investing in a center pivot irrigation system to irrigate 80 acres of land in fresno. -$75 -$150/acre -$31,000 -5 year period of time -$31,000 -15% -straight-line over 15 years -$31,000 -10% return on capital 1. Calculate the initial cost 2. Calculate the after-tax net returns 3. Calculate the tax savings from depreciation 4. Calculate the after-tax terminal value 5. Suppose that the discount rate is 8.5% Using information from your answers above, what is the NPV for the investment?

4 out of 5 1. $39,200 2. $5,100 3. $2.613 4. $30,270 5. $4,104.83

An owner of a large ranch is considering the purchase of tractor with a front-end loader to clean his land instead of hiring workers. -$35,000 -$12,500 $1,500 -5 years -$23,500 in 5 years -depreciate the trailer over 10 years using straight-line -requires at least 20% pretax rate of return 1.What is the annual aftertax net return? 2.What is the tax savings from depreciation? 3. 4. 5. 6.

5 out of 10 1. $8,400 2. $1,143 3. b 4.a 5. $11,673.42 6.$4037

A farmer has the opportunity to purchase an advanced guidance system for precision farming. This is the advertisement: New Outback MAX Guidance System Outback MAX™ with Outback ConnX™ — introducing the next generation Outback Guidance® system that redefines simplicity in precision farming. The farmer believes that the guidance system that can be purchased for $6,000 will improve corn production by 240 bushels per year. He plans to keep the Guidance system for 9 years. At the end of 9 years he believes he can sell it for $800. The farm's accountant has done some preliminary work. The marginal tax rate is 20%, the pre-tax risk adjusted discount rate is 14% and inflation is assumed to be zero. The account calculates the present value of the tax savings from depreciation to be $732.57, and the present value of the after-tax terminal value to be $246.17. The price of corn is expected to be $4.40/bushel over the 9 years. (i) Calculate the additional after-tax net returns from corn production if the farmer purchases the guidance system. A. $900 B. $845 C. $270 D. $750 E. None of these answers Enter Response Here: [i] (ii) Calculate the after-tax risk adjusted discount rate. A. 11.2% B. 12% C. 3.6% D. 1.25% E. None of these answers Enter Response Here: [ii] (iii) Calculate the present value of the additional after-tax net returns from corn production if the farmer purchases the guidance system. A. $5,932 B. $1,779 C. $4,642 D. $2,963 E. None of these answers Enter Response Here: [iii] (iv) Calculate the NPV of the guidance system. A. $156 B. $1100 C. $445 D. $-380 E. None of these answers Enter Response Here: [iv] (v) Calculate the break-even improvement in corn production (yield) if the farmer purchases the guidance system. A. $150 B. $260 C. $140 D. $170 E. None of these answers Enter Response Here: [v]

A B C D E only got partially right

A farmer is thinking about investing in a center pivot irrigation system to irrigate 80 acres of land in Fresno. With an irrigation system, operating expenses would increase by $75 per acre due to electricity, maintenance and additional labor. It is estimated that the irrigation will increase yields and thus operating receipts by $150 per acre. The cost for drilling a well would be $8,200 and the cost for the center pivot irrigation system would be $31,000. The irrigation system would be ¼ mile long and would irrigate 80 acres. Suppose that the farmer wants to evaluate this investment over a five-year period of time. The farmer believes that if he sold the farm in five years, the irrigation system would add $31,000 to the sale price. The farmer anticipates that his marginal tax rate over the next six years will be 15%. The IRS will allow the farmer to depreciate the investment using straight line over 15 years. Assume that the terminal value of this investment is $31,000 at the end of five years. The farmer requires a 10% return to capital (pretax). (i) Calculate the Initial Cost a. $39,200 b. $22,800 c. $31,000 d. $8,200 Enter your response here[a] (ii) Calculate the after-tax net returns a. $10,200 b. $12,000 c. $5,100 d. $75 Enter your response here[b] (iii) Calculate the tax savings from depreciation a. $310 b. $392 c. $2,221 d. $2,613 Enter your response here[c] (iv) Calculate the after-tax terminal value a. $29,450 b. $33,320 c. $26,350 d. $30,270 Enter your response here[d] (v) Suppose that the discount rate is 8.5%. Using information from your answers above, what is the NPV for the investment? a. $1,835.39 b. $4,680.59 c. $2,572.93 d. $4,104.83 Enter your response here[e]

A C B D C

An owner of a large ranch is considering the purchase of tractor with a front-end loader to clean his land instead of hiring workers. The equipment costs $35,000. This ranch expects that he will save $12,500 a year that is usually paid to workers who do it by hand. However, he will incur an additional cost of $1,500 for fuel, repair, and maintenance. The rancher plans on keeping the equipment for 5 years before replacing it with a new one. He thinks he can sell the old equipment for $23,500 in 5 years. He anticipates that his marginal tax rate will be 15% over the next five years. The IRS will allow the rancher to depreciate the tractor over 10 years using the straight-line method. The rancher requires at least a 20% pretax rate of return on capital (pretax). (i) What is the annual after-tax net return? a. $9,350 b. $9,200 c. $11,500 d. $8,400 Enter Response Here [a] (ii) What is the tax savings from depreciation? a. $7,482 b. $5,714 c. $1,143 d. $525 Enter Response Here [b] (iii) What is the after-tax terminal value? a. $24,500 b. $22,600 c. $40,000 d. $25,000 Enter Response Here [c] (iv) What is the after-tax discount rate? a. 17% b. 35% c. 3% d. None of the above Enter Response Here [d] (v) What is the present value of the after-tax terminal value? a. $12,837.85 b. $11,673.42 c. $10,308.11 d. None of the above Enter Response Here [e] (vi) What is the maximum fuel, repairs and maintenance cost that can be paid each year to operate the loader and still find this investment profitable? a. $6748 b. $3285 c .$5000 d. $4037 Enter Response Here [f]

A D B A C D

__________ measures and matches the income earned and expenses incurred within an accounting period.

Accrual-Basis accounting

________ measures and matches the income earned and expenses incurred within an accounting period

Accural-basis accounting

The cash flow statement is broken down into _________ activities.

All of the above

The magnitude of the compound amount in a compound interest is determined by

All of the above

The major institutional sources of loan funds for US agriculture include

All of the above

The major institutional sources of loan funds for US agriculture include.

All of the above.

Sacramento Paper is considering two mutually exclusive projects. Project A has an internal rate of return (IRR) of 12 percent, while Project B has an IRR of 14 percent. The two projects have the same risk, and when the cost of capital is 7 percent the projects have the same net present value (NPV). Assume each project has an initial cash outflow followed by a series of inflows. Given this information, which of the following statements is most correct?

All of the statements above are correct

What is an ordinary annuity?

An annuity is just a series of equal payments at some regular interval over some fixed period of time. It has pmts at the BEGINNING of each period.

As of 2015, ranches were taxed at 13 percent for income up to $42,000; at 20 percent for income ranging from $42,000 to $71,000; at 26 percent for taxable income $71,000 to $98,000; at 42 percent for income from $98,000 to $112,000, and so on. Suppose that you have revenues of $172,800 and operating expense of $69,500. (i) What is the amount of the taxable income? a. $242,300 b. $76,442 c. $103,300 d. $172,800 e. None of the answers are correct Enter Response Here: [i] (ii) How much tax is paid on the first $42,000 of the taxable income? a. $5,460 b. $2,226 c. $5,800 d. $7,020 e. None of the answers are correct. Enter Response Here: [ii] (iii) How much tax is paid on the first $71,000 of the taxable income? a. $5,800 b. $14,200 c. $11,260 d. $9,230 e. None of the answers are correct Enter Response Here: [iii] (iv) How much tax is paid on the total taxable income? a.$127,800 b. $20,506 c. $69,500 d. $2,226 e. None of the answers are correct Enter Response Here: [iv] (v) What is the average tax rate? a. 26.83% b. 8.46% c. 10.58% d. 19.85% e. None of the answers are correct Enter Response Here: [v] (vi) What is the marginal tax rate? a. $13% b. 20% c. 26% d. 42% e. None of the answers are correct Enter Response Here: [vi]

C A B C B D partially right

A farmer is considering borrowing money from a bank. Given the following information : Initial loan amount is $95,000. The loan will be fully amortized in 3 years at 12%. Marginal tax rate is 25%. (i) What is the principal payment in the 1st year? a. $21,114.86 b. $8,550.00 c. $28,153.15 d. None of the answers are correct ENTER RESPONSE HERE: [i] (ii) What is the principal payment in the 2nd year? a. $13,054.50 b. $31,531.53 c. $23,648.65 d. $25,288.29 ENTER RESPONSE HERE: [ii]

C B

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $95,000. The loan will be fully amortized in 3 years at 12%. Marginal tax rate is 25%. (i) What is the loan balance at the end of 1st year? a. $73,934.68 b. $73,885.14 c. $66,846.85 d. None of the answers are correct ENTER RESPONSE HERE: [i] (ii) What is the loan balance at the end of 2nd year? a. $48,646.40 b. $35,315.32 c. $50,236.49 d. None of the answers are correct ENTER RESPONSE HERE: [ii]

C B

The ____________ of a business, agency, household, or another economics unit involves the acquisition and use of financial resources and the protection of equity capital from various sources of risk

C; financial management

Budgeting Methods are used to evaluate the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, ______ budgets, and capital budgets.

Cash Flow

Budgeting methods are used to evaluate the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, ___ budgets, and capital budgets.

Cash flow

_______ is a summary of the cash flows and outflows over a specified period of time

Cash flow statement

________ is a summary of the cash inflows and outflows over a specified period of time.

Cash flow statement

The NPV method focuses on

Cash flows

_____________ is an amount that makes you indifferent between playing and not playing the game.

Certainty Equivalent

______ is the coefficient calculated by dividing the standard deviation by the expected value, which is used to compare investments with different expected values and levels of dispersion.

Coefficient of Variation

A discount rate must account for the followings:

Cost of capital, Return on alternative investments, Risk, and Taxes

Quantity of outputs does not depend on:

Credibility

_________ are represented cash and near-cash items whose values will likely be realized in cash or used during the normal course of business.

Current Assets

What are the two broad classes of assets that are commonly used to express the degree of liquidity?

Current and future assetsX

A farmer wants to borrow $97,300 for a tractor. The loan would be fully amortized over 20 years at 14% interest. (i) What is the annual loan payment? a. $28,341.89 b. $15,841.31 c. $13,762.29 d. $14,690.94 Enter your response here [a] (ii) What is the remaining principal balance on the following loan at the end of 15 years? a. $174,080.64 b. $104,919.08 c. $97,300.00 d. $50,435.18 Enter your response here [b]

D B partially right

Given the following information : Nominal Initial Cost = $25,000; Nominal Before-tax Net Return = $5,000 Marginal Tax Rate = 15%; Required rate of return = 10% Real Terminal Value = $0; Investment Life = 8 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 10 years and the inflation rate is 4%. (i) What is the annual depreciation expense? a. $3,250 b. $2,600 c. $3,125 d. $2,500 enter response here: [i] (ii) What are the tax savings from depreciation? a. $250 b. $100 c. $175 d. $375 enter response here: [ii]

D D

The major institutional sources of loan funds for US agriculture include:

D; all of the above life insurance companies govt agencies commercial banks farm credit services

Information flows can be obtained from the financial statements that reports

D; all of the above profitability, liquidity, solvency

Which of the following is not included when determining uncertainty in financial decisions?

Forward contract or hedge

What does GAAP stand for?

Generally Accepted Accounting Principles

What does GAAP stand for?

Generally Accepted Accounting Principles.

.20 .15 .18 .30 .10 .50 .07 .08 .15 .05 .30 -.05 -.08 -.20 -.01

H: 1.442 BC: 1.814 S: 2.517 MF: .927

Which of the following is not a characteristic of farmland?

High ownership turnover

Suppose an investor is considering four investments, and has made forecasts of returns and probabilities for each investment. The discrete probability distributions of the profit rates are represented in the following table.

Hogs: 1.442 Beef Cattle: 1.814 Stocks: 2.517 Mutual Funds: 0.927

Which of the following is not a role that a financial manager should play in a modern enterprise?

Holding a meeting with the board of directors on a weekly basis

What happens to PV if the interest rate you can earn increases?

It decreases. The PV will grow at a quicker rate, so you don't need as much to get to the same FV.

The ______ is a summary of the revenue and expenditures of the business over a specified period of time. It is also known as the ________.

Income statement/ profit and loss statement

the ________ is a summary of the revenue and expenditures of the business over a specified period of time. it is also known as the _______.

Income statement/ profit and loss statement

________ is the period of time that principal accrues interest before interest is added to principal.

Interest periodX

_______ is defined as the addition of durable assets to a business

Investment

Which is not included in the major institutional sources of loan funds for U.S. agriculture?

Investment banks

You took personal finance, so you started saving early for retirement. You put aside $5,000 per year for 40 years at 9%. Your college roommate didn't take a personal finance class. Ten years before retirement, he knew he was in trouble, so he started saving $50,000 per year. Who is better off at retirement?

Me with the early start. Early start: $1,689,413 Procrastinator: $759,646

You've been told that you can expect to earn about 10% per year in the stock market. Let's assume you already have $25,000 saved. How long would it take for your annual deposits of $4,000 to your stock fund (with the first one coming in a year - this is just an ordinary annuity) to make you a millionaire?

N=29.1 years (I/Y=10, PV=-25,000, PMT=-4,000, FV=1,000,000)

You have $1,000 to invest now. How long will it take to achieve your goal of $1,800 if you earn 8% per year?

N=7.64 years (I/Y=8, PV=-1,000, PMT=0, FV=1,800)

As of 2015, farms were taxed at 13 percent for income up to $45,000; at 18 percent for income ranging from $45,000 to $69,000; at 28 percent for taxable income $69,000 to $96,000; at 41 percent for income from $96,000 to $130,000, and so on. Suppose that you have revenues of $173,800 and operating expense of $55,800. How much tax is paid on the first $69,000 of taxable income?

NOT $10,170

Assume that the terminal value of an investment is $25,000. This investment has a cost of $45,000 with a marginal tax rate of 15%. This purchase has an annual depreciation of $3,500. It is required at least a 10% pretax rate of return on capital. What is present value of after-tax terminal value after 7 years?

NOT $43,058

Suppose you purchase a tractor for $85,000, the pre-tax discount rate is 14%, the marginal tax rate is 15%, and the tractor can be sold for $10,000 in 8 years. Calculate the present value of the initial cost.

NOT $75,000

As of 2007, ranchers were taxed at 14 percent for income up to $41,000; at 16 percent for income ranging from $41,000 to $67,000; at 26 percent for taxable income $67,000 to $83,000; at 39 percent for income from $83,000 to $198,000, and so on. There is a social security rate of 12.4% and a Medicare rate of 2.9%. Suppose that you have revenues of $138,400 and operating expense of $51,600. What total tax percent will be applied to the 26% tax bracket?

NOT 12.4%

Given all the choices below, which is not a primary source of business risk of agricultural firms?

NOT Climate change or Input price fluctuations

Which of the following does not characterize NPV?

NPV does not explicitly incorporate risk into the analysis

Which of the following does not characterize NPV?

NPV does not explicitly incorporated risk into the analysis

A contract the gives the holder the right to buy or sell something at a particular price during a period in time is

Options Contract

You borrow $200,000 for your new house at 7% interest for 30 years. What is your monthly house payment?

PMT= $-1,330.60 (N=360, I/Y=0.5833, PV=200,000, FV=0)

You want to retire in 40 years with $1 million. Assuming you can earn 10% per year, how much should you deposit at the end of each year?

PMT= $-2,259.41 (N=40, I/Y=10, PV=0, FV=1,000,00)

You want to retire in 40 years with $4 million. Assuming you can earn 10% per year, how much should you deposit at the end of each year? But wait - you already have $50,000 saved.

PMT= $-3,924.69 (N=40, I/Y=10, PV= -50,000, FV= 4,000,000)

You want to retire in 45 years, instead of 40 years, with $4 million. Assuming you can earn 10% per year, how much should you deposit at the end of each year?

PMT= $-5,564 (N=45, I/Y=10, PV=0, FV=4,000,000)

Your rich aunt gives you $100,000 and places it in an account that is guaranteed to earn 7% per year. She tells you that this should get you through the next four years. Assuming you make 4 equal withdrawals (with the first one at the end of the year), how much can you withdraw per year?

PMT=$-29,523 (N=4, I/Y=7, PV=100,000, FV=0)

You want to retire in 40 years with $4 million. Assuming you can earn 10% per year, how much should you deposit at the end of each year?

PMT=$-9,038 (N=40, I/Y=10, PV=0, FV=4,000,000)

You borrow $10,000 to pay for your college tuition. The loan is amortized over a three-year period with an interest rate of 18%. What is your remaining balance at the end of Year Two? Pick the closest answer.

PV 10,000 FV 0 I/Y 18 N 3 → PMY = $4,599.24 YR1: INT = $1,800 → PRIN = 4,599.24 - 1,800 = $2,799.24 END BAL = 10,000 - 2,799.24 = $7,200.76 YR2: INT 7,200.76((0.18) = $1,296.14 → PRIN 4,599.24 - 1,296.14 = $3,303.10 END BAL 7,200.76 - 3,303.10 = $3,897.66

PRESENT VALUE OF LUMP SUM: Suppose you need $20,000 in three years to buy your new hybrid car. If you can earn 8% on your money, how much do you need to set aside today?

PV= $-15,876 (N=3, I/Y=8, PMT=0, FV=20,000)

A rich relative wants you to be a millionaire ... in 40 years. Assuming you can earn 10% per year, how much would she have to give you right now so she gets her wish (and you get the $1 million later on).

PV= $-22,095 (N=40, I/Y=10, PMT=0, FV=1,000,000)

PRESENT VALUE OF AN ANNUITY: You want to provide your nephew with $5,000 per year for the next 20 years. (Assume payments are made at the end of each year.) If you can earn 9% on your money, how much do you need to set aside today to cover this plan?

PV= $-45,643 (N=20, I/Y=9, PMT=5,000, FV=0)

You can afford mortgage loan payments of $1,500 per month. Annual rates on home loans just jumped to 6%. How big a loan can you handle assuming you finance for 30 years?

PV= $250,187 (N=360, I/Y=0.50, PMT=-1,500, FV=0)

You can afford mortgage loan payments of $1,500 per month. Annual rates on home loans are currently 5%. How big a loan can you handle assuming you finance for 30 years?

PV= $279,422 (N=360, I/Y=0.4167, PMT=-1,500, FV=0)

Which of the following does not reduce risk in production decisions? Diversify crops/business stockpile Production inputs Prepare a Marketing plan All of these reduce risk in production decisions

Prepare a Marketing Plan

_______ reflects the level of preferences attached to a good or service.

PriceX

Risk management methods can be categorized in terms of the _______, ________, and _________ organizations of farm businesses.

Production, Marketing, Financial

Profit Maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest ____.

Profit

Goals are expressed as a goal or utility function containing three elements which are?

Profitability Liquidity Risk

The figure below shows the NPV profile for two investment projects. Refer to NPV Profile. The NPV of which project is more sensitive to the discount rate?

Project 1

Project X and Project Y are two mutually exclusive projects. X requires initial outlay of $37,990 and generates a net cash flow of $14,050 per year for six years. Y requires initial outlay of $51,950 and will generate cash flows of $15,450 per year for 8 years. Which should be chosen assuming a discount rate of 10% for each.

Project X

Project X and Project Y are two mutually exclusive projects. Project X requires an initial outlay of $37,990 and generates a net cash flow of $14,050 per year for six years. Project Y requires an initial outlay of $51,950, and will generate cash flows of $15,450 per year for eight years. Which project should be chosen? (Assume that the discount rate for both projects is 10 percent).

Project Y

The focal point of financial management in a corporate firm is

The creation of value for shareholders

What is discounting?

When we take away the effects of interest on future values to find present values

Which one of the followings is a source of risk that can be categorized in financial risks rather than business risks?

Wrong Answer: Risks attributed to unanticipated variations in agricultural production; Risks attributed to unanticipated variations in agricultural production; risks attributed to changes in technology

Which of the followings are significant tools of financial management?

Wrong answer: Cash Flow/ Information Flows/ Risk Management/ Capital Budgeting; cash flow/ risk management/ liquidity management/ capital budgeting; cash flow/risk management/strategic management/capital budgeting

Suppose you can buy a mechanical post hole digger for $500. It is projected that the digger will save you $150 a year over the next four years (end of year). If your required rate of return is 6%, should you buy the digger?

Yes, since NPV = $19.77 > 0. Response Feedback: Solution: NPV(6,-500,{150,150,150,150})

Suppose you can buy a tractor for $2,000. It is projected that the tractor will save you $500 a year over the next five years (end of year). If your required rate of return is 7.5%, should you buy the tractor?

Yes, since NPV = $22.94 > 0

Suppose you buy a tractor for $2,000, It is projected that the tractor will save you $500 a year over the next five years (end of year),. If your required rate of return is 7.5% should you buy the tractor?

Yes, since NPV= $22.94 > 0

A portfolio of the two investments dominates investing in the one with the lowest variance if their correlation is negative.

true

In future value or present value problems, unless stated otherwise, cash flows are assumed to be a. at the end of a time period. b. at the beginning of a time period. c. in the middle of a time period. d. spread out evenly over a time period.

Interest earned only on an investment's principal or original amount is referred to as: a. simple interest b. compound interest c. discount interest d. annuity interest

The _________ value of a savings or investment is its amount or value at the current time. a. present b. future c. book d. none of the above

The interest rate determined by multiplying the interest rate charged per period by the number of periods in a year is called the: a. annual percentage rate b. compound rate of interest c. stated rate of interest d. effective annual rate

You need to have $35,000 on hand to buy a new Lexus five years from today. To achieve that goal, you want to know how much you must invest today in a certificate of deposit guaranteed to return you 3% per year. To help determine how much to investment today, you will use: a. present value of a single lump sum b. future value of a single lump sum c. present value of an annuity d. future value of an annuity

Your college has agreed to give you a $10,000 tuition loan. As part of the agreement, you must repay $12,600 at the end of the three-year period. What interest rate is the college charging? a. 8% b. 9% c. 11% d. 6%

a PV 10,000 FV -12,600 N 3 → I/Y = 8%

A risk measure should reflect how risks are perceived by an investor.

true

Assume your bank has a choice between two deposit accounts. Account A has an annual percentage rate of 7.55 percent but with interest compounded monthly. Account B has an annual percentage rate of 7.45 percent with interest compounded quarterly. Which account provides the highest effective annual return? a. Account A b. Account B c. Both provide the same effective annual return. d. We don't have sufficient information to make a choice.

a, It has a higher nominal interest rate and compounds more frequently

Price of output which depends on supply and demand:

a, b, and c

How can you reduce risk in financial decisions?

a, b, c, d, and e

How can you reduce risk in marketing decisions?

a, b, c, d, and e

Which of the followings factors help determine uncertainty in financial decisions?

a, b, c, d, and e

How can you reduce risk in marketing decisions?

a,b,c,d and e

The price of outputs do not depend on

advertising

Which of the following is not considered a source of liquidity? Cash Credit Reserves Liquid Assets All are sources of liquidity

all are sources of liquidity

How can one reduce risk in production decisions?

all of teh answers are correct

One of the ways to reduce production risks is to

all of the above

The capital budgeting process involves

all of the above

Which of the following is not a participant in financial markets?

all of the answers are participants

Which of the following is not a participant in financial markets? individuals government institutional investors businesses

all of the answers are participants

A source of liquidity that arises from the liability side of firm activities is known as credit reserves.

true

A farmer is thinking about investing in a center pivot irrigation system to irrigate 100 acres of land in Fresno. The current operating expenses are $80 per acre. It is estimated that the irrigation will increase yields and thus operating receipts by $100 per acre. The cost for drilling a well would be $10,000 and the cost for the center pivot irrigation system would be $22,000. The irrigation system would be ¼ mile long and would irrigate 100 acres. Suppose that the farmer wants to evaluate this investment over a nine-year period of time. The farmer believes that if he sold the farm in nine years, the irrigation system would add $10,000 to the sale price. The farmer anticipates that his marginal tax rate over the next six years will be 20%. The IRS will allow the farmer to depreciate the investment using straight line over 8 years. Assume that the terminal value of this investment is $10,000 at the end of nine years. The farmer requires a 12% return to capital (pretax). (i) Calculate the Initial Cost a. $22,000 b. $20,000 c. $32,000 d. $12,000 ENTER RESPONSE HERE: [a] (ii) Calculate the after-tax net returns a. $80 b. $1,600 c. $8,000 d. $6,400 ENTER RESPONSE HERE: [b] (iii) Calculate the tax savings from depreciation a. $3,200 b. $426 c. $2,221 d. $800 ENTER RESPONSE HERE: [c] (iv) Calculate the after-tax terminal value a. $8,000 b. $10,000 c. $2,000 d. $12,000 ENTER RESPONSE HERE: [d]

b c b a not entirely sure

Your current bank is paying 6.25% simple interest rate. You can move your savings account to Harris Bank that pays 6.25% compounded annually or to First Chicago bank paying 6% compounded semi-annually. To maximize your return you would choose: a. your current bank b. Harris Bank c. First Chicago Bank d. you are indifferent, because the effective interest rate for all three banks is the same

b, is the correct answer, EAR=6.25% a. not as good as annual compounding interest in Harris Bank c. EAR=(1+.03)^2-1=1.0609-1=6.09%

For an investment project, if NPV=8.77 when using 11% discount rate, NPV=4.13 when using 12% discount rate and NPV=-1.55 when using 13% discount rate, then the IRR must be

between 12% and 13%

A/an ___________ is (generally) a security that promises a fixed periodic payment.

bond

a/an _________ is (generally) a security that promises a fixed periodic payment

bond

_____ is the risk that a business will experience a period of poor earnings from poor yield or low commodity prices

business risk

A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a period of five years. To determine what lump sum has the same value as the contract today, you would need to use: a. present value of a single lump sum b. future value of a single lump sum c. present value of an annuity d. future value of an annuity

A loan that is repaid in equal payments over a specified time period is called a (n) a. discount loan b. balloon loan c. amortized loan d. none of the above

A series of equal payments or receipts that occur at the beginning of each of a number of time periods is referred to as: a. an ordinary annuity b. a deferred annuity c. an annuity due d. an extraordinary annuity

The future value of a dollar ________ as the interest rate increases and ________ the farther in the future is the funds are to be received. a. decreases; decreases. b. decreases; increases. c. increases; increases. d. increases; decreases.

The method of calculating interest on a loan that is set by law is called the: a. negotiated legal rate (NLR) b. effective annual rate (EAR) c. annual percentage rate (APR) d. none of the above

When solving for the future value of an amount deposited now, which one of the following factors would not be part of the calculation? a. present value amount b. 1 plus the interest rate c. 1 divided by the sum of 1 plus the interest rate d. number of periods to compound over

Which of the following statements is false? a. For a given APR, more frequent compounding results in additional return on the investment. b. An amortized loan is repaid in equal payments over a specified time period. c. The effective annual rate is determined by multiplying the interest rate charged per period by the number of periods in a year. d. Each of the above statements is true.

A firm with a production function characterized by diminishing marginal productivity and operating in perfectly competitive markets will achieve ________ organizations of inputs and enterprises by producing so that marginal value products are equal in all enterprises.

equalX

In the _______________ , the value of property to the "average" or "typical" manager is estimated under average production and price conditions.

capitalization approach

Budgeting Methods are methods used to evaluate the future directions of a firm. For agricultural firms, emphasis is typically placed on enterprise budgets, ______ budgets, and capital budgets.

cash flow

Sensitivity analysis is conducted by:

changing the value of a single variable and computing the resulting change in the current value of a project

Probability Distribution is the entire set of probabilities of outcomes that are often characterized by three simple statistical measures—the expected value, the standard deviation, and the ______.

coefficient of variation

As the discount rate increases, the IRR of a project:

decreases

Noninterest Costs indicate in addition to interest, all charges that are payable _____ by the borrower and that are imposed ______ by the lender as incident to or as a condition of the extension of the loan.

directly or indirectly

The process of finding present values from future payments is often referred to as _________. It is the opposite of the ______________ process used to determine future values.

discounting, compounding

The process of finding present values from future payments is often referred to as _________. It is the opposite of the ______________ process used to determine future values

discounting; compounding

Access to ___________ is limited in Agriculture.

equity capital

A farmer wants to borrow $34,400 for a squeeze chute. The loan would be fully amortized over 16 years at 15% interest. (i) What is the annual loan payment? a. $5,777.40 b. $5,375.98 c. $7,209.35 d. $8,268.40 (ii) What is the remaining principal balance on the following loan at the end of 7 years? a. $27,567.35 b. $34,400.00 c. $29,993.91 d. $49,231.97

i: A ii: A

A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $52,000. The loan will be fully amortized in 3 years at 10%. Marginal tax rate is 15%. (i) What is the principal payment in the 1st year? a. $15,709.97 b. $13,029.06 c. $13,353.47 d. None of the answers are correct (ii) What is the principal payment in the 2nd year? a. $14,835.71 b. $3,530.58 c. $17,280.97 d. None of the answers are correct

i: A ii: C

As of 2015, farms were taxed at 10 percent for income up to $42,000; at 23 percent for income ranging from $42,000 to $62,000; at 30 percent for taxable income $62,000 to $92,000; at 40 percent for income from $92,000 to $122,000, and so on. Suppose that you have revenues of $174,900 and operating expense of $55,700. (i) What is the amount of the taxable income? a. $230,600 b. $119,200 c. $83,440 d. $174,900 e. None of the answers are correct (ii) How much tax is paid on the first $42,000 of the taxable income? a. $4,200 b. $9,000 c. $ 4,600 d. $460 e. None of the answers are correct. (iii) How much tax is paid on the first $62,000 of the taxable income? a. $4,600 b. $14,26 c. $8,800 d. $6,200 e. None of the answers are correct (iv) How much tax is paid on the total taxable income? a. $119,200 b. $28,680 c. $174,900 d. $10,880 e. None of the answers are correct (v) What is the average tax rate? a. 12.44% b. 10.18% c. 24.06% d. 34.37% e. None of the answers are correct What is the marginal tax rate? a. 30% b. 10% c. 23% d. 40% e. None of the answers are correct

i: B ii: A iii: C iv: B v: C vi: D

Given the following information: Nominal Initial Cost = $90,500; Nominal Before-tax Net Return = $7,000 Marginal Tax Rate = 20%; Required rate of return = 11% Real Terminal Value = $110,500; Investment Life = 5 years Suppose that IRS will allow the investor to depreciate the investment using straight-line over 12 years and the inflation rate is 5%. (i) What is the nominal terminal value? a. $116,205 b. $141,029 c. $148,452 d. $134,313 (ii) What is the annual depreciation expense? a. $7,542 b. $7,919 c. $8,100 d. $7,905 (iii) What is the nominal after-tax terminal value? a. $103,378 b. $123,382 c. $87,510 d. $82,958

i: B ii: A iii: B

Given the following information: Nominal Initial Cost = $68,000; Nominal Before-tax Net Return = 11,000 Marginal Tax Rate = 20%; Required rate of return = 12% Real Terminal Value = $60,000; Investment Life = 3 years Inflation Rate = 4%; Risk Premium = 2% Suppose that IRS will allow the investor to depreciate the investment using straight-line over 12 years. (i) What is the after-tax, risk adjusted discount rate? a. 14.4% b. 11.65% c. 11.2% d. 13.2% (ii) What is the nominal after-tax net return at the end of year 2? a. $9,518 b. $9,898 c. $9,252 d. $9,598 (iii) What is the annual tax saving? a. $1,133 b. $1,533 c. $2,720 d. $680 (iv) What is the nominal after-tax terminal value? a. $60,120 b. $64,600 c. $64,193 d. $64,005 (v) What is the present value of the nominal after-tax terminal value? a. $41,446 b. $44,534 c. $46,685 d. $44,124 (vi) What is the NPV of this investment? a. $4,571 .32 b. $4,754.17 c. $4,388.17 d. $3,657.06

i:C ii:A iii:A iv:C v:C vi:A

The required compensation must ___________ as the risks and levels of risk aversion increase.

increase

Unused credit ________liquidity; __________ returns.

increase; decresase

The costs of both debt and equity eventually _________ as leverage __________

increases/increases

Tax basis is equal to:

initial cost basis - accumulated depreciation

Tax basis is equal to:

initial cost basis- accumulated depreciation

Future Value is how much a current sum of money will be worth at a future date assuming a certain ____ rate.

interest

A/An _________ is a contract by which control over the right to use an asset is transferred from one party (the lessor) to another party (the lessee) for a specified time in return for a rental payment to cover the lessor's costs of ownership.

lease

______ are the claims on the firm's assets by lenders and other creditors

liabilities

Given all the choices below, which is not a primary source of business risk of agriculture firms?

real estate price fluctuatuion

Jon and Robb have determined the existing storage facilities are too small and need to be expanded. They predict the probabilities of pessimistic, most likely, and optomistic states of the economy are 25%, 55%, and 20%. Using the coefficient of variation, determines the more preferable alternative: pessimistic .25; 20,000; -20,000 most likely .55; 40,000; 20,000 optamistic .20; 100,000; 205,000

remodel

Financial Risks are _____ risks associated with using debt capital.

repayment

Investment Analysis is a procedure for evaluating the effects of investment choices on a business's profitability, ____, and liquidity.

risk

The risk attitude that means individuals must be compensated for taking risks is

risk averse

_________ investors have a high propensity to engage in risky investments.

risk-loving

___________ investors care only about their expected gains or losses

risk-neutral

The linkage between ______ and ______ is based on uncertainties about future events and decision outcomes.

risk/time

The linkage between _______ and ________ is based on uncertainties about future events and decrease outcomes

risk/time

To ascertain whether the accuracy of the variable cost estimate for a project will have much effect on the final outcome of the project, you should probably conduct _______ analysis.

sensitivity

Which of the following is not a common method of depression used in accounting?

straight-lineX

The tax on capital gains of loss on an investment is

terminal gain or loss on an investment times the marginal tax rate

The tax on capital gains or loss on an investment is

terminal gain or loss on an investment times the marginal tax rate

The tax on capital gains or loss on an investment is

terminal gain or loss on an investment times the marginal tax rate.

The IRR method assumes that the reinvestment rate of cash flows is

the IRR

The internal rate of return for a project will increase if

the initial cost of the project can be reduced

The internal rate of return for a project will increase if:

the initial cost of the project can be reduced

The internal rate of return for a project will increase if:

the initial cost of the project can be reduced.

Accepting positive NPV projects benefits the stockholders because:

the present value of the expected cash flows are greater than the cost.

A project may have multiple IRRs when

the project generates an alternating series of net cash inflows and outflows

Project A has conventional cash flows and is acceptable according to the NPV criterion. If the required rate of return is 12 percent, then

the project will be acceptable using the IRR criterion

"Income Generating," "Cost Reduction," and "Maintenance and Replacement" are categories of alternative investments.

true

"Maintenance and Replacement," "Cost Reduction," and "Income Generating" are categories of alternative investments.

true

A firm in liquid when the current market value of its assets exceeds its current debt obligations and when it can meet these obligations over long period.

true

A firm is ___________ when the current market value of its assets exceeds its debt obligations and when it can meet these obligations over long period.

true

A lender's use of fees, compensating deposit balances, and stock requirements increases the annual effective interest rate paid by the borrower.

AGEC 330 Lecture 1, AGEC 330, Chapter 2 (pt 2) Time Value of Money Basics, AGEC 330 Exam 1, Ch. 9 Practice Problems, TAMU AGEC 330 with Leatham, AGEC 330 Lecture 15, AGEC 330, AGEC 330 Exam 4, AGEC 330 Lecture 24, AGEC 330 Exam 3 Review, AGEC 330 fin...

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