check your work farm business planning – lesson 4

Check Your Work

Farm Business Planning – Lesson 4

A Project Funded by:USDA BFRDP

Grant #10506276Development Partners Include:

Mississippi State University

National Association of Agricultural Educators

Oklahoma State University• Agricultural Economics Department• Oklahoma Cooperative Extension

Service

The following slides provide the answers for the practice problems for Lesson 4. Activity 1 – Practice What

You Learned.

Enterprise Budgets and Analysis

1. The cost of producing soybeans is $280 per acre, and soybeans yield 37 bushels per acre.

•Breakeven Price=

•Breakeven Yield=

Enterprise Budgets and Analysis2. Using this information, estimate the

operating interest that would appear on the farmer’s enterprise budget if the note carries:

•Operating Interest=

•Operating Interest=

Annual Cash Flow Budget FormSources of cash  

Beginning Cash Balance $22,000

Crop Sales -

Livestock Sales $300,000

Sale of Depreciable Assets -

Sale of Land -

Proceeds from Planned Borrowing $102,500

Other Sources of Cash (e.g., contributed capital)

-

Total Sources of Cash $424,500

Uses of Cash  

Cash Expenses (excluding interest paid) $102,500

Breeding Stock Purchases -

Purchase of Other Depreciable Assets -

Purchases of Land -

Principal Payments $15,500

Interest Payments on Long-Term Debt $19,800

Operating Note Repayment $102,500

Interest on Operating Note $3,844

Other Uses of Cash -

Total Uses of Cash $244,144

Net Cash Surplus or Deficit $180,356

Balance Sheets1. Find the following ratios:

• (D/A)=

• (D/E)=

• (E/A)=

• Working Capital = 128,000 – 33,500 = 94.500

• Current Ratio =

Balance Sheets

Is the operation solvent? Is it liquid? Explain.

•The operation is projected to be both solvent and liquid. Current assets exceed current liabilities by over 380% proving liquidity. The D/A and D/E ratios are low while the E/A ratio is high, proving solvency.

Balance SheetsCurrent assets Current liabilities

Cash $43,000 Current Portion of Work Truck Note $7,150

Cash Invested in Building $85,000 Operating Interest

Payable  

    Current Portion of Land Debt $22,000

    Interest Payable $4,350

Total current assets $128,000 Total current liabilities $33,500

Non-current assets Non-current liabilities

Land $260,000 Long-Term portion of Land Debt $168,000

Work Truck $51,000 Long-Term portion of Work Truck Note $16,000

Machinery and Equipment $350,000    

    Total non-current liabilities $184,000

Total non-current assets $661,000 Total liabilities $217,500

Total assets $789,000 Owner’s equity $571,500

    Total liabilities + Owner’s equity $789,000

Find the missing variables of the balance sheet by using the following information

A. $12,600 Total CL – (Current Portion of Long Term Debt + Interest Payable)

B. $71,300   Working Capital + Total Current Liabilities            C. $33,800   Total Current Assets – ( Accounts Receivable + Cash invested)

D. $212,300 Total Current Liabilities + Total Non-current Liabilities             E. $786,296 Total Liabilities/Debt-to-Asset Ratio            F. $714,996 Total Assets – Total Current Assets            G. $79,996   Total Non-Current Assets – Machinery – Land            H. $573,996 Total Assets – Total Liabilities            

Determine the value of the truck, a non-current asset (NCA) and the amount of current liability (CL) and non-current liability (NCL) that will appear on the balance sheet:

  NCA CL NCL

a. at end of year 2   $38,700 $21,545 $199,502

b. at end of year 3   $31,800 $23,053 $176,448

c. at end of year 4   $24,900 $24,667 $151,782

Special Thanks to:

•USDA BFRDP Grant Program

•Oklahoma State University▫Eric A. DeVuyst, Department of Agricultural

Economics

•National Association of Agricultural Educators