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