1. Assume that a farmer has current assets including cash of K5,000, K7,174 in livestock inventory, K56,997 in crop inve

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1 Assume That A Farmer Has Current Assets Including Cash Of K5 000 K7 174 In Livestock Inventory K56 997 In Crop Inve 1 (132.79 KiB) Viewed 45 times

1 Assume That A Farmer Has Current Assets Including Cash Of K5 000 K7 174 In Livestock Inventory K56 997 In Crop Inve 2 (150.6 KiB) Viewed 45 times

1. Assume that a farmer has current assets including cash of K5,000, K7,174 in livestock inventory, K56,997 in crop inventory, purchased inputs of K8,377, cash invested in growing crops of K2,834, and prepaid insurance of K975. In addition, assume that the firm has longer-termed assets of investments in cooperatives of K577, land and buildings of K689,272, farm equipment of K100,738, and breeding livestock of K17,499. Assume that the operator dwelling is worth K91,683. Assume that the current liabilities include notes payable within the year of K15,600, current portion of long-term debt of K7,706, accrued interest of K3,115, and accounts payable of K4,924. Finally, assume that the long-term ebt includes K67,553 of real estate debt and K9,040 of equipment debt. What is owner equity? Construct the firm's balance sheet. 2. You have a dairy cow that produces K3,200 of milk per year for 10 years (realized at the end of the year). In the 11th she becomes infertile so you sell her for K1,000. What is the present value of the dairy cow assuming a weighted average cost of capital of 4.75 percent?
3. Use the table below to answer the following questions. a) Compute the average return on assets and average margin over borrowing cost using the income statements in Table A and balance sheets in Table B. Based on these values is borrowing profitable? b) Using the data in Tables A and B, does this farm qualify for debt (i.e., is the farm profitable, liquid, and solvent)? Table A Item 2006 2007 2008 2009 Gross cash income Livestock income Crop sales Government payments Other farm-related income Total cash expenses Variable expenses Livestock purchases Feed Other livestock-related Seed and plants Fertilizer and chemicals Utilities Labor Fuels and oils Repairs and maintenance Machine hire and custom work Other variable expenses Fixed expenses Real estate and property taxes Interest Insurance premiums Rent and lease payments Net cash farm income Depreciation Net farm income 171,629 29,842 118,775 6,417 16.596 150,529 74,051 1,317 9,039 934 14,581 24,198 1.766 6,375 6.537 7,845 1,457 63,857 30.729 3,562 5.711 3,599 20.257 21,100 12.620 8,480 175,798 32,940 115,367 7,350 20,141 149,078 77,016 1,298 8,450 968 15,210 27,327 1.721 5,709 6,590 8,310 1.432 59.835 30.053 3,728 5,753 3,774 16,526 26,720 12,227 14,493 173,228 34,992 118,821 6,180 13,236 153,129 77,289 945 10,204 1,048 13,920 27,145 1,747 6,276 6,586 7,992 1,426 62.797 32,369 3,542 6,032 3.710 17,145 20,099 13.043 7,056 176,568 29,167 120,567 6,872 19,961 149,737 78,770 1,349 9,764 1,182 14,021 28.803 1,808 5,780 6,419 8.222 1,421 58,340 27,946 3,279 6,035 3,778 17.301 26,831 12.627 14,204 Table B Item 2006 2007 2008 2009 942,060 133,518 7.174 56,977 8,377 Farm assets Current Livestock inventory Crop inventory Purchased inputs Cash invested in growing crops Prepaid insurance Other Non-current Investment in cooperatives Land and buildings Operators dwelling Farm equipment Breeding animals Farm liabilities Current Notes payable within one year Current portion of term debt Accrued interest Accounts payable Non-current Non-real estate Real estate Farm equity 2,834 975 57,183 808,541 577 689,727 91,683 100,738 17,499 107,939 31,345 15,600 7,706 3,115 4,924 76,594 9,040 67,553 834,121 960,138 146,166 6,974 54,646 8,623 3,097 930 71,896 813,972 580 696,813 100,926 103,600 12,978 111,891 40,401 23,302 8,572 2,950 5,578 71.490 9,554 61,935 848,248 871,165 146,746 8.110 47,939 8,168 2,935 940 78,654 724,419 428 612,047 92,049 101,278 10,666 108,845 34,040 17,480 7.722 3,102 5,736 74,805 9,088 65,717 762,320 990,267 155,663 6,721 53.287 8,637 2,793 941 83,285 834,604 472 724,143 147,039 96,519 13,469 118.886 38,585 21.930 7,883 3,471 5,301 80,300 8,943 71,357 871,381