Deck 11: Financing the Agribusiness

Question 1

The objective of increasing the ------------------------------- of an agribusiness is to increase sales volume and revenues, and consequently its profit, through the application of increased assets.

Answer 1

capital

Question 2

A ------------------------------- is a commitment by the lender to make available a certain sum of money to a firm that is usually for a one-year period, at a specified interest rate, whenever the firm needs to loan funds.

Answer 2

line of c redit

Question 3

------------------------------- is the concept of financing an agribusiness through the use of long-term debt instead of equity capital so the agribusiness can maximize the amount of capital or assets it has at its disposal.

Answer 3

Leverage

Question 4

A -------------------------------is a projection of an agribusiness firm's cash inflows and outflows for a specified future period of time.

Question 5

A ------------------------------- financial statement provides a look into the future of an agribusiness and helps the manager determine the financial needs of that agribusiness during and at the end of a future operating period.

Question 6

Long-term loans are generally defined as loans for

A) Less than 1 year
B) 1-5 years
C) 5 or more years
D) No due date

Question 7

A manager may raise funds needed to operate an agribusiness from

A) Investment by owners
B) Borrowing
C) Funds generated by profits and retained in the business
D) All of the above

Question 8

When a lending institution requires the amount of interest scheduled to be paid be deducted from the amount available to the borrower it is called a

A) Discounted loan
B) Compensating balance
C) Points
D) Annual percentage rate

Question 9

If a lender makes a $100,000 loan at a 10 percent stated interest rate but requires a $5,000 compensating balance, the effective annual interest rate is

A) 9.5%
B) 10.0%
C) 10.5%
D) None of the above

Question 10

If a $100,000 loan with a 10 percent stated interest rate is repaid as an installment loan with quarterly payments, the annual percentage rate would be

A) 10%
B) 16%
C) 18.5%
D) None of the above

Question 11

If the before-tax interest rate is 10 percent and the marginal tax rate is 30 percent, the after-tax interest rate is _____ percent.

A) 7.0%
B) 9.7%
C) 10.3%
D) None of the above

Question 12

The major input(s) to consider when calculating debt servicing capacity is/are

A) Net operating income after interest, income tax and dividends owed
B) Net operating income before interest, income tax and dividends owed
C) Cost of goods sold
D) None of the above

Question 13

When a bank lists the accounts receivable for an agribusiness as collateral and neither the agribusiness nor the bank notifies the customers of the agribusiness the bank wishes to collect the money owed, it is using a(n)

A) Accounts receivable, notification loan
B) Warehouse receipt
C) Accounts receivable, non-notification loan
D) None of the above

Question 14

An agribusiness may choose to lease capital assets, because it

A) Avoids using cash reserves for purchasing assets
B) Leasing expenses are tax deductible
C) A leased asset can be turned back to the lessor and a newer or better asset procured
D) All of the above

Question 15

A long-term contractual arrangement in which a lessee acquires control of an asset in return for rental payments made over several years to a lessor is called a

A) Cash rent lease
B) Operating lease
C) Capital lease
D) None of the above

Question 16

Usually, short-term loans to agribusinesses are self-liquidating.

Question 17

Equity capital can be secured by borrowing from a commercial bank.

Question 18

An amortized loan means the amount of a loan is reduced by periodic loan payments of decreasing interest and increasing principal payments until the loan is repaid.

Question 19

When a lending institution requires that a certain amount (service charges based on the face value of the loan) be paid at the start of the loan, the amount paid is called points.

Question 20

A restriction that could be placed on a loan is that a firm be required to maintain certain ratios at predetermined levels throughout the time the loan is outstanding is called a promissory requirement.

Question 21

A budget is typically a specific forecast of financial performance and can be used to project cash inflows and outflows.

Question 22

The number one source of borrowed funds for most agribusinesses is commercial banks.

Question 23

Accounts receivable loans with notification means the agribusiness will collect the money that is owed.

Question 24

In a lease agreement, the owner of the asset is referred to as the lessee.

Question 25

In the event of the liquidation of a corporation, owners of preferred stock would be repaid before owners of common stock.