Farmer Joe-Bob Owns and Manages JB Farms Where He Raises Approximately 300 Head of Beef

March 6, 2008

Name: ______Participant # ______ARE 495U Assignment 2- 10 points

Create 5 or more marketing plan questions that need to be answered related to FF.

2008 North Carolina FFA Farm Business Management JUNIOR DIVISION Career Development Event Section II: Problem Solving (200 points)

Read each problem carefully. The main concept of each problem is stated at the start of each problem. Read the entire problem before beginning work on that problem.

Section II contains four (4) problems. Check to see that you have six pages including the cover page. The point value for each of your answers is stated in parenthesis to the right of each blank.

You have 100 minutes to complete this section of the Career Development Event.

prepared by the Department of Agricultural and Resource Economics College of Agriculture and Life Sciences North Carolina State University NCSU Box 8109 Raleigh, North Carolina 27695 919. 515-4544 www.ag-econ.ncsu.edu

in cooperation with the Department of Agricultural and Extension Education College of Agriculture and Life Sciences North Carolina State University

sponsored by

Southern States Cooperative, Inc.

North Carolina FFA Farm Business Management JUNIOR DIVISION CDE – 2008 page 1 PROBLEM 1- Investment Analysis or Time Value of Money (50 points)

PV = FV / (1 + r)n

PV= Present Value

FV= Future Value r= interest or discount rate

Use the information in TABLE A to answer questions 1 to 3. (5 points each) NOTE: ROUND-OFF decimals to the nearest dollar ($1594.38 rounds off to $1594).

TABLE A Years Present Value of $1 Future Value of $1

1 .926 1.080

2 .857 1.166

3 .794 1.260

1. If you receive $2,000 one year from now and $10,000 three years from now, what is it worth today?

A. $14,760 B. $12,000 C. $11,112 D. $9,792 E. $9,528

2. If you have $25,000 today, what will it be worth two years from now?

A. $31,500 B. $29,150 C. $27,000 D. $25,000 E. $21,425

3. You received $15,000 today, and will receive a payment of $5,000 once a year for the next three years. What is the present value of this income?

A. $15,000 B. $20,000 C. $26,910 D. $27,885 E. $30,000

North Carolina FFA Farm Business Management JUNIOR DIVISION CDE – 2008 page 2 Use the information in TABLE B to answer questions 5-10. Circle the letter beside the correct response. (5 points each) NOTE: ROUND-OFF decimals to the nearest cent ($1594.38775 rounds off to $1594.39).

TABLE B Present Future Present Value of Value of Value of Years $1 $1 Annuity 1 0.9346 1.0700 0.9346 2 0.8734 1.1449 1.8080 3 0.8163 1.2250 2.6243 4 0.7629 1.3108 3.3872 5 0.7130 1.4026 4.1002 6 0.6663 1.5007 4.7665

5. What is the present value of a dollar to be received in five years? A. 24.39 cents or 24 cents B. 71.30 cents or 71 cents C. $1.40 D. $4.10

6. A field of alfalfa will produce $1,000 during the first year, $4,000 during each of the next four years and $2,000 in the sixth year. What is the present value of this income stream? A. $14,453.50 B. $14,929.60 C. $15,970.80 D. $18,157.10

7. A beef cow produces after-tax returns at the end of the year of $60/year for five years and can be sold for $350 after-tax at the end of the fifth year. Assume TABLE B uses the appropriate discount rate and determine the current value of the cow. A. $468.20 B. $477.77 C. $495.56 D. $589.56

8. With one year of income remaining in the beef cow in Question #7, how much should the beef cow be worth using the above tables? A. $383.19 B. $396.72 C. $454.82 D. $470.00

9. If the farmer expects interest rates to increase, but no change in net returns to cattle, what impact is this likely to have on the present value of the beef cow? A. Decrease the present value B. Increase the present value C. Would not change the present value D. Cannot tell

10. What discount rate is used in TABLE B? A. 7.4% B. 8.0% C. 9.5% D. none of the above

North Carolina FFA Farm Business Management JUNIOR DIVISION CDE – 2008 page 3 Problem 2- Supply, Demand, and Prices (50 points)

The graph represents the supply of wheat (S), the demand for wheat in the U.S. (DUS), the demand for wheat for export (DF), and the total demand of for wheat (DT). Circle the letter beside the correct response. (10 points each)

1. What is the market equilibrium price of wheat in the U.S.?

D. P4 E. none of the above 2. At the market equilibrium price, how much wheat will be used in the U.S.?

3. At the market equilibrium price, how much wheat will be exported?

For Questions 4 and 5, include foreign demand and assume higher yields per acre cause the supply to increase from S to S1

4. The increased supply of wheat should cause wheat demand to A. shift to the left and up. B. shift to the right and down. C. not change. D. none of the above

5. Higher wheat yield would cause A. exports of wheat to go up. B. the equilibrium price of wheat to go down. C. both A and B D. the foreign demand for wheat to shift left. E. none of the above

North Carolina FFA Farm Business Management JUNIOR DIVISION CDE – 2008 page 4 Problem 3- Fixed and Variable Costs (50 points)

Properly identifying variable and fixed costs is important in planning and developing enterprise budgets. For the following costs, identify whether each item is a variable cost or a fixed cost. Write a “V” in the blank if the item is a variable cost. Write an “F” in the blank if the item is a fixed cost. (2 points for each blank)

Crop insurance

Custom harvesting expenses

Feed purchases

Real estate taxes

Interest on annual operating capital

Depreciation on machinery

Tractor operating expense

Insurance for machinery and equipment

Fertilizer purchases

Machinery labor

Circle the letter beside the correct response. (10 points each)

1. To produce in the short run, which costs must be covered? A. Variable costs B. Fixed costs C. Total costs D. Overhead costs E. Opportunity costs

2. Neuse River Farms produced 32 bushels per acre of soybeans. The fixed and variable costs per acre for those soybeans were $87.95 and $120.73 respectively. What were Neuse River’s total costs per bushel?

A. $4.90 bushel B. $5.40 bushel C. $6.52 bushel D. $7.28 bushel E. cannot be determined without more information.

3. Just before harvest Neuse River Farms has $190.68 per acre invested in the soybeans and the anticipated yield is 32 bushels per acre. Neuse River expects to sell the soybeans for $4.50 per bushel. Total harvesting and marketing costs are $18.00 per acre. In order to maximize profits (or minimize losses), Neuse should:

A. leave the soybeans in the field because costs before harvest are too high. B. have the soybeans custom harvested for $19.00 per acre. C. harvest the soybeans. D. let a neighbor craze cattle on the soybeans for $15.00 per acre.

North Carolina FFA Farm Business Management JUNIOR DIVISION CDE – 2008 page 5 Problem 4- Partial Budgeting (50 points)

The Newmans’ farm business is in southeastern North Carolina. They have been growing cucumbers as part of their normal farming activities. However m they are considering converting some of their cucumber land to growing melons. After visiting with farm business advisors, the Newmans determine that partial budgeting is the best technique for analyzing the change. Based on their enterprise budgets for cucumbers and melons, consider the following data.

Total operating costs per acre for cucumbers $590 Total operating costs per care of melons $5,865 Price of cucumbers $40 per hundred weight (cwt.) Price of melons $205 per ton Yield per acre of cucumbers 26 cwt. per acre Yield per acre of melons 33 tons per acre Proposed Change: Shift some cucumber land to melons. Do not worry about total acres because the analysis can be done on a per acre basis and fixed costs are not a consideration because they are the same regardless of which alternative the Newmans choose. a. Complete the partial budget form. Note: Write “none” or “zero” in any category with no entry. Round answers to two decimal places.

Added Returns: Reduced Returns:

Subtotal $ ______(2 points) Subtotal $ ______(2 points) Reduced Costs: Added Costs:

Subtotal $ ______(2 points) Subtotal $ ______(2 points)

Total AR + RC $ ______(2 points) Total RR + AC $ ______(2 points)

Net Change $ ______(12 points) b. Should the change be implemented? Circle the correct response. (12 points)

Yes No c. The Newmans would be indifferent between cucumbers and melons if the “net change” was equal to zero. What price of cucumbers would make the Newmans indifferent between the cucumber and melon alternatives?

$______per hundred weight (cwt.) (14 points)

End of Problem Solving Section of 2008 FBM Junior Division CDE

North Carolina FFA Farm Business Management JUNIOR DIVISION CDE – 2008 page 6