Final Exam ANS 440/540 Winter 2002 1. Critique the following mission statement. What s missing, if anything? Name: Oregon Trail Dairy aspires to be the best dairy in the Pacific Northwest. We will continue to meet consumer expectations by producing high quality milk. Oregon Trail is committed to educating the public about agriculture and protecting our natural resources. 2. How does a vision statement differ from a mission statement? 3. List the seven things that a manager does. 4. You re contemplating buying an ultrasound machine to detect pregnancy. This would replace biweekly visits by the veterinarian. Determine which alternative, ultrasound or veterinarian, is best using decision analysis (weighting decision alternatives). You should be able to derive the rating for each from the table below. Weighting is your opinion. Criteria Ultrasound Veterinarian Start-up Costs 10,000 0 Cost to Maintain 0 $2/palpation Ease to Implement Requires Training None Effectiveness More Effective Less Effective Managerial Time Equal to Vet General Appeal Your Call
Complete the following Decision Alternatives Chart Ultrasound Veterinarian Criteria Weight Rating Points Rating Points Start-up Costs Cost to Maintain Ease to Implement Effectiveness Managerial Time General Appeal Total Points Final Rank 5. A friend of yours has two offers for a parcel of land worth $120,000. Should they accept offer A or B? (MARR = 10%) a. $13,000 down and $3,100/mo for 36 mo. b. $3,500/mo. for 36 mo. 6. The average price for a new car is approximately $22,000. If you finance 80% of the purchase for 60 mo. at 9% interest, what will your monthly payments be? 7. Well the average car isn t good enough for most folks. A nicely equipped truck or SUV would cost about $10,000 more. How much money would you have at the end of 20 years if you invested the $10,000 at 6%, instead of spending it on a more expensive vehicle?
8. Determine the annual cost of a mix wagon and how much extra milk you would need to breakeven. Purchase Price $30,000 Repairs 6% Tax/Insurance 1.5% Salvage Worth $5,000 at the end of 8 years MARR 8% Years 8 Annual Values Amount Factor AV Purchase x = Salvage x = Repairs x = Tax/Ins x = Total Annual Cost Payoff Number of Cows 125 Milk Price ($/lb) 0.13 Find $/cow/year / 125 = Find lbs/cow/year / 0.13 = 9. Compare these two loans by combining the rate of interest and the points. Loan 1: 7.0% for 30 years, plus 0 points Loan 2: 6.75% for 30 years, plus 3.0 points a. Which is least costly? b. Now consider that at the rate people move, this loan will probably be replaced in 7 years. Compare the two loans on the basis of 7 years.
10. Use the attached financial statements to answer the following questions. Show your work and include dollar values in your answers. a. Did the farm have a positive cash flow? b. Did the farm make a profit? c. How much of the business does the operator own? d. What are the debt obligations for next year? e. Calculate the Current Ratio. Is it acceptable? f. Calculate Debt/Asset Ratio. Is it acceptable? g. Calculate Return on Equity. Is it acceptable? h. Calculate Capital Turnover Ratio. Is it acceptable? 11. The following questions pertain to income taxes. a. Using the income statements #10. How much income will the operator have to pay taxes on? (Hint: There are no calculations. The number is on one of the sheets) b. Why are capital items depreciated and not expensed in the year purchased?
c. If someone said their marginal tax rate or MTR is 28%, what does that mean? d. What effect will additional revenue or expenses/depreciation have on ones tax liability? e. Use the following information to determine the tax liability for a single person with no dependents. You need to determine appropriate deductions, exemptions, and tax owed. Use tax table to determine tax owed. Adjusted Gross Income 50,000 Deductions Exemptions Taxable Income Tax Owed 12. What happens to variable cost and fixed costs as parlors increase in size (i.e. get larger, more stalls)? 13. Refer to the attached Lease-Buy sheet for the following questions. a. Which is favored, lease or buy? b. Which requires more cash at the start (time=0)? c. Which provides the largest amount of deductions for taxes in the first year?
14. How much could you afford to pay for cows if net income is $400/year and salvage price in two years will be $500. MARR = 8%. 15. Would the amount (tons) of storage loss affect the type of system that you would use to store silage? 16. If you had 250 cows, how much total forage should you budget for each year? 17. Determine the gain or loss from the following milk future contract scenario. September 2002 milk futures are trading at $12.50/cwt. Suppose your basis is $0.50/cwt, therefore this should relate to a farm price of $13.00/cwt. You determine that $13.00/cwt is a profitable price and you sell a Sep 2002 contract. Sep futures settle at $12.00/cwt. You receive $13.00/cwt for the milk you produce and sell in Sep. Determine your gain/loss in the futures market and in the cash market, then figure your net gain/loss. Buy September 2001 contract Sep 01 futures contract settles Futures Gain/Loss Expected cash price Actual cash price Cash Gain/Loss $12.50/cwt $11.50/cwt $13.00/cwt $13.00/cwt Net Gain Loss
18. With regard to milk futures, what happens if the basis changes, either increases or decreases? Relate this to Problem 15. 19. What happens to an individual s estate if they don t have a will (intestate) and live in Oregon? Suppose they are married and have two children. 20. How much of an estate or $$ can you pass to an individual without that individual incurring any estate tax (i.e. income tax)?
Cash Flow Statement Cash Flow For Year: 2001 Name: Beaver Dairy OPERATING RECEIPTS Total Per Cow Per cwt Milk 1,374,104 2,748 14.33 Culls 66,325 133 0.69 Calves 11,000 22 0.11 Patronage dividends 17,878 36 0.19 Co-op Retains 9,628 19 0.10 Govt Payment 19,787 40 0.21 Total Operating Receipts 1,498,722 2,997 15.63 CAPITAL RECEIPTS Cattle 20,984 42 0.22 Total Capital Receipts 20,984 42 0.22 OTHER RECEIPTS Operating loans 36,000 72 0.38 Total Other Receipts 36,000 72 0.38 TOTAL RECEIPTS 1555706 3,111 16.22 OPERATING EXPENSES Assessments (milk check deduct.) 44,948 90 0.47 Breeding 14,438 29 0.15 Custom hire 2,047 4 0.02 DHI 11,400 23 0.12 Feed, purchased 365,644 731 3.81 Fertilizer, lime, seed, chemicals 64,781 130 0.68 Gas, fuel, oil 45,903 92 0.48 Insurance 23,281 47 0.24 Interest 52,616 105 0.55 Hired Labor 131,871 264 1.38 Management Labor 45,000 90 0.47 Milk hauling (milk check deduct.) 55,140 110 0.58 Property Taxes 39,359 79 0.41 Rent and leases (mostly land) 12,500 25 0.13 Repairs and maintenance 52,153 104 0.54 Supplies 71,384 143 0.74 Utilities 33,894 68 0.35 Vet & Medicine 37,069 74 0.39 Other 68,047 136 0.71 Total Operating Expenses 1,171,474 2,343 12.22 OTHER EXPENSES Income tax 38,750 78 0.40 Principal payments 114,837 230 1.20 Capital purchases (machinery) 30,000 60 0.31 Total Other Expenses 183,587 367 1.91 TOTAL EXPENSES 1,355,062 2,710 14.13 CASH FLOW SUMMARY Cash at Start 29,781 60 0.31 Cash Surplus (deficit) 200,644 401 2.09 Cash at End 230,425 461 2.40
Name: Beaver Dairy Period covered: 2001 Operating Receipts PROFIT AND LOSS STATEMENT Operating Expenses Gross sales of livestock and their products Assessments (milk check deduct.) 44,948 Milk 1,374,104 Breeding 14,438 Cull Cows 66,325 Custom hire 2,047 Calves 11,000 DHI 11,400 Feed, purchased 365,644 Fertilizer, lime, seed, chemicals 64,781 Subtotal livestock 1,451,429 Gas, fuel, oil 45,903 Gross from sale of crops (describe): Insurance 23,281 Interest 52,616 Hired Labor 131,871 Management Labor 45,000 Milk hauling (milk check deduct.) 55,140 Property Taxes 39,359 Subtotal crops - Rent and leases (mostly land) 12,500 Other from farming (describe): Repairs and maintenance 52,153 Patronage dividends 17,878 Supplies 71,384 Co-op Retains 9,628 Utilities 33,894 Govt Payment 19,787 Vet & Medicine 37,069 Other 68,047 Subtotal other 47,293 Total cash operating receipts 1,498,722 Total cash operating expenses 1,171,474 Adjustments for change in inventory Growing Market Net cash farm income 327,247 Feed Crops Livestock Supplies Beginning inventory 232,947-10,922 Ending inventory 100,872-7,213 Total Net Net change (132,075) - - (3,709) Change (135,784) Adjustments for depreciation and capital items Machinery Breeding Buildings & & Equipment Livestock Improvements Beginning inventory 501,563 924,000 429,375 + purchases 180,000 (A) SUB TOTAL 681,563 924,000 429,375 Ending inventory 626,250 965,625 392,500 + sales 20,984 (B) SUB TOTAL 626,250 986,609 392,500 Net change (B-A) (55,313) 62,609 (36,875) Total Net Change (29,579) PROFIT (LOSS) Before Tax 161,884 Income Taxes 49,800 PROFIT (LOSS) After Tax 112,084
BALANCE SHEET Name: Beaver Dairy Date: 2001 CURRENT ASSETS CURRENT LIABILITIES Cash on Hand Accounts Payable Cash on Deposit 230,425 Principal portion of non-current debt Accounts Receivable 10,000 due within 12 months Notes Receivable Farm Loan 82,132 Marketable Bonds and Securities Tractor Loan 26,804 Livestock Held for Sale 0 Operating Loan 16,191 Crops or Feed on Hand 100,872 Cash Invested in Growing Crops Accrued Prepaid Expenses Interest Other Current Assets (Specify) Tax Liability (Income, 26,563 Semen / Supplies 7,213 Real, and Personal Property) Rent and Lease Payments Other (Specify) TOTAL - Current Assets 348,510 TOTAL - Current Liabilities 151,691 NON-CURRENT ASSETS NON-CURRENT LIABILITIES Securities (Not Readily Marketable) Principal Portion Non-Current Debt Cash Surrender Value, Life Insurance Due Beyond 12 Months Breeding and Dairy Livestock 965,625 Farm Loan 256,544 Cars and Trucks Machinery and Equipment 102,623 Farm Machinery and Equipment 626,250 Dairy Equipment Breeding Stock Life Insurance Investments in Cooperatives Household Furn. & Equipment Farm Real Estate Land 1,357,422 Other Non-Current Liabilities Other (Specify) Buildings 392,500 TOTAL - Non-Current Assets 3,341,797 TOTAL - Non-Current Liabilities 359,167 TOTAL ASSETS 3,690,307 TOTAL LIABILITIES 510,858 NET WORTH 3,179,449
LEASE vs BUY Break Evens (CTRL- ): Marginal Income Tax Rate % 28 Lease (L) TaxRate(R) MARR / Opportunity Cost % 7.00 (post-tax) Price (K) Yr1Deduct(D) Lease Data Buy Data Number of Months 36 Total Price 18,000 Months Prepaid 2 Down Payment 6,000 Amount Borrowed 12,000 Lease Payment 500 Payment (optional) Months 60 Purchase, % of Price 10 Interest Rate % 9.00 Calculated Payment 249.10 Initial Fees (if any) 100 Closing Costs/Pts 0 Convention (1,2,3,4, or MidYr) mid Type of Depreciation (1, 1.5, 2, or SL) 1.5 Deprec. Class (Yr) 7 Net Present Value: (13,031) Net Present Value: (13,695) The Lease is favored by 664 Present Value Dollars Tax Deductions, year 1: 7,100 4,172 Tax Deductions, year 1: 2,928 LEASE Year BUY Year Init. Fees -100 0 Closing costs 0 0 Purchase -1800 3 Down Payment -6000 0 Tax. Ded. Closing 0 1 Rate of Depreciation 21.43% Tax Loan Tax Red. Tax Red. Payments Reduction Total Year Payment Interest Depr. Deprec Total -1000-1100 0-6000 -6000 1988-4012 1-2989 280 1929 540-2169 -6000 1680-4320 2-2989 228 3444 964-1797 -5000 1400-5400 3-2989 170 2706 758-2061 4-2989 108 2205 617-2264 5-2989 39 2205 617-2332 6 2205 617 617 7 2205 617 617 8 1102 309 309 9 10 11 12 13 14 15 16 17 18 19 20 21 NPV Lease---> -13031 Buy----> -13695