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.

Accepted Answer

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.

Accepted Answer

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.

Accepted Answer

Leverage

Question 4

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

Accepted Answer

The answer of A -------------------------------is a projection of an agribusiness...

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.

Accepted Answer

The answer of A ------------------------------- financial statement provides a look...

Question 6

Long-term loans are generally defined as loans for

Accepted Answer

Long-term loans are typically defined as loans with a repayment period of 5 or more years. These loans can extend up to 30 years or more, depending on the purpose and terms of the loan.

Question 7

A manager may raise funds needed to operate an agribusiness from

Accepted Answer

A manager can raise funds through investment by owners, borrowing, and using profits retained in the business.

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

Accepted Answer

A discounted loan is where the interest is calculated and deducted upfront from the principal amount before giving the loan to the borrower, reducing the actual amount received by the borrower.

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

Accepted Answer

The effective interest rate is calculated by considering the compensating balance. The borrower effectively receives $95,000 ($100,000 - $5,000) but pays interest on the full $100,000. The interest paid is $10,000 (10% of $100,000), so the effective interest rate is $10,000 / $95,000 = 10.5%.

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

Accepted Answer

The answer of If a $100,000 loan with a 10...

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.

Accepted Answer

The after-tax interest rate can be calculated by subtracting the tax paid on the interest from the before-tax interest rate. This is done by multiplying the before-tax rate (10%) by (1 - the marginal tax rate), which in this case is (1 - 0.30) or 0.70. Therefore, the after-tax interest rate is 10% * 0.70 = 7.0%.

Question 12

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

Accepted Answer

Net operating income after interest, income tax and dividends owed is the major input to consider when calculating debt servicing capacity because it represents the cash flow available to service debt obligations.

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)

Accepted Answer

This scenario describes an accounts receivable, non-notification loan, where the bank uses the accounts receivable of a business as collateral for a loan without notifying the customers who owe money to the business.

Question 14

An agribusiness may choose to lease capital assets, because it

Accepted Answer

Leasing capital assets allows an agribusiness to avoid using cash reserves for purchasing assets, benefit from tax-deductible leasing expenses, and have the flexibility to return an asset and lease a newer or better one, making all the provided options correct.

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

Accepted Answer

A capital lease is a long-term lease agreement that allows the lessee to essentially have the benefits of ownership over the asset without actually owning it, which fits the description given.

Question 16

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

Accepted Answer

Short-term loans to agribusinesses are typically self-liquidating because they are used to finance specific operations or the purchase of inventory that is sold within the loan period, generating revenue to pay off the loan.

Question 17

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

Accepted Answer

Equity capital refers to funds raised by a company in exchange for a share of ownership in the company. It is not obtained through borrowing, which is associated with debt financing.

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.

Accepted Answer

In an amortized loan, each payment covers the interest expense and reduces the principal, with interest payments decreasing and principal payments increasing over time until the loan is fully 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.

Accepted Answer

Points are upfront fees paid by a borrower to a lender, calculated as a percentage of the loan amount, often used to reduce the interest rate on the loan.

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.

Accepted Answer

This type of restriction is known as a covenant, not a promissory requirement. Covenants are conditions or clauses in a loan agreement that require the borrower to meet certain operational, financial, or other criteria during the term of the loan.

Quiz 11: Financing the Agribusiness