ANSC 4662W / SAAS 262

EXAM I

Feb 25, 2015 NAME:______

SECTION A. Briefly define or identify the following. In the case of abbreviations, provide additional information beyond simple translation. Also, be certain that your answer is related to the dairy industry. (2 pts @).

1)Farm Credit Administration

2)CFCR

3)GIGO

4)ROI

5)Discounting (Financial sense… Not the “Big Box Discount Warehouse” sense)

SECTION B. Calculate the listed financial measures for a 250cow dairy operation given the following information from a net worth statement. Let's say you are a financial consultant for the dairy and Jane, just recently graduated from college and full of new ideas, comes to you for advice regarding various upgrades she has in mind for the family farm. She wants to borrow about $50,000 on improving the housing conditions, including tunnel ventilation, removing head locks from the barn, expanding barn slightly to accommodate up to 300 cows and adding a small handling area for breeding or vet work. She also wants to put up a greenhouse for raising calves from birth to weaning. What advice do you have for her? Remember, she's paying you, so make it worth the money! (Show work for partial credit 5 pts @)

Assets: Current 250K; Intermediate 50K; Long Term 500K

Liabilities: Current 150K; Intermediate 30K; Long Term 320K

1)Current Ratio2) Debt / Cow

3)Current Debt Ratio4) Equity (%)

5)Your Advice?

SECTION C. Circle T or F to indicate whether the statement is true or false, respectively (2 pts @).

TF 1)Equity (as a value instead of %) is the same as net worth.

TF 2)The cash flow statement shows the value of assets remaining if a business is liquidated and all debts are paid.

TF 3)Future interest payments are not included on a net worth statement.

TF 4)FLCAs offer competitive rates for savings accounts.

TF 5)The greatest advantage computerized record-keeping systems have over the non-computerized versions is the ability to quickly produce herd-level reports and averages.

TF 6)A loan to purchase superb breeding stock for a dairy would be entered as a long term liability on a net worth statement.

TF 7)The Rule of 72 is used to calculate either how long or what interest rate is necessary to double a given amount of money.

TF 8)In addition to lending money to equity-poor agricultural producers, the Farm Services Agency also manages USDA's agricultural disaster relief funds.

TF 9) Most dairies have current ratios between 1 and 1.5.

TF 10)For the average dairy, financial problems may result from a debt payment ratio greater than 25%.

SECTION D. Please answer the following on lined paper provided. Show work for partial credit where applicable. Note differences in point value.

1)List 5 expenses common to dairy farms. (5 pts)

2)Briefly explain the characteristics of effective writing. (One sentence each will suffice - 5 pts)

3)During discussions of the writing process in class, your instructor suggested that the University's designation of GER-required writing intensive courses should not be a "W" but instead should be an "R". What was the rationale for that statement? (5 pts)

5)Discuss three Key Performance Indicators as presented by Mike Hutjens during the Hoard’s Dairyman webinar on managing transition cows. (10 pts)

5)Let's pretend it's 2065. Guess how old you are (sorry, no points for that). After texting for about 60 years, the joints in your thumbs and wrists are arthritic and extremely painful. Fortunately, modern medicine is capable of almost anything. Unfortunately, with the repeal of Obamacare in the early part of the century, you have to pay for all of it. Given that you are still working (in 2065, Social Security retirement age is 80), you figure you can save money over the next nine months and put together the necessary funds. Since you have variable expenses to pay each month, you figure you can deposit $11,000, $12,000, $14,000, $13,000, $16,000, $15,000, $12,000, $13,000 and $10,000 at the beginning of each of the next nine months, respectively. Your account pays 2% each month. At the end of the ninth month, you withdraw the money and pay for the surgery (up front, of course). How much more money beyond what you have saved will you need to cover the $140,000 cost? Draw a timeline that describes this problem and show work for partial credit. (10 pts)

SECTION E. For the supplied cash flow statement, calculate each quarterly balance and add up the annual total (fill in blanks on sheet). Suppose the owner has recently expanded the housing facilities and now (it's August) is looking to buy 40 pregnant heifers at an average price of $2,000. Assume that this year's milk production will not be increased more than 5% from these animals because of their due dates (earliest November). Further assume obtaining a loan would not be a problem, but the owner wants to borrow as little as possible. What advice would you give? Should the animals be purchased outright? Why or why not? What is the smallest amount the owner could borrow and manage to avoid placing the enterprise in a precarious position? Explain. Supposing the owner is adamant about not borrowing money but still needs the heifers, what alternatives can you suggest? Answer advice and alternatives question on lined paper provided. Calculations 2 pts; Advice 3 pts; Alternatives 5 pts

Jan-Mar Apr-Jun Jul-Sep Oct-Dec Total

Income Sources

Milk Sales $100,000.00 $95,000.00 $84,000.00 $98,000.00 $377,000

Livestock $3,500.00 $3,700.00 $4,000.00 $3,300.00 $14,500

Total Income $103,500.00 $98,700.00 $88,000.00 $101,300.00 $391,500

Expenditures

Hired Labor $15,000.00 $18,000.00 $18,000.00 $15,000.00 $66,000

Purchased Feed $40,000.00 $36,000.00 $33,000.00 $38,000.00 $147,000

Crop Expenses $1,500.00 $5,000.00 $6,000.00 $4,000.00 $16,500

Maintenance $1,500.00 $2,000.00 $2,500.00 $2,000.00 $8,000

Supplies $1,500.00 $2,000.00 $2,000.00 $1,500.00 $7,000

Family Living $10,000.00 $10,000.00 $10,000.00 $10,000.00 $40,000

Income Taxes $1,500.00 $1,500.00 $1,500.00 $1,500.00 $6,000

Debt Payments $20,000.00 $20,000.00 $20,000.00 $20,000.00 $80,000

Total Expenses $91,000.00 $94,500.00 $93,000.00 $92,000.00 $370,500

Cash at Start $75,000.00 ______$75,000.00

Quarterly +/- ______

Cash at End ______