farm economics and management aeb4131 mahadev bhat homework 3 on a wor

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Farm Economics and Management
AEB4131
Mahadev Bhat
Homework 3
On a Word file, please complete the following questions:
A) Question 4 of Chapter 6 Farm Business Analysis and discuss if this farm meets various
financial thresholds as shown in Example 1 and Example 2 in this lecture notes (slide 14 to
17) for this chapter. Question is copied below for ease. You will need to show your work.
Simply writing the final answer will not be sufficient.
4. Use the following data to calculate the profitability and efficiency measures listed:
Gross revenue
Value of farm production
Income from operations
Interest expense
Value of unpaid labor and management
Total asset value: beginning
ending
Farm equity:
beginning
ending
a. Rate of return on assets
b. Rate of return on equity,
c. Asset turnover ratio
d. Operating profit margin ratio
%
%
%
e. Income from operations ratio
In the above table, assume that Income from Operations [same as Net Income from Farm
Operation] of $66,000 includes the interest expenses of $18,000. In this case, you will need to
follow the formula given chapter 5 & Revised Homework 2 Ans Key for computing Return to
Asset and Return Equity.
B) Answer question 3 of the Book Chapter 9 on page 174. The question is copied below for your
ease.
$185,000
167,000
66,000
18,000
31,000
$400,000
$430,000
$340,000
$352,000
3. Assume that Freda Farmer has just purchased a new combine. She has calculated total fixed cost to be $22,500 per year and estimates a total variable cost of $9.50 per acre.
a. What will her average fixed cost per acre be if she combines 1,200 acres per year? 900 acres per year?
b. What is the additional cost of combining an additional acre?
c. Assume that Freda plans to use the combine only for custom work on 1,000 acres per year. How much should she charge per acre to be sure all costs are covered? If she would
custom harvest 1,500 acres per year? C) Answer question 4 of the Book Chapter 9 on page 174. See below.
4. Assume the purchase price of a combine is $250,000. It is estimated to have a salvage value of $68,000 and a useful life of 8 years. The cost of capital is 7 percent. Compute the
average annual depreciation and interest costs.
D) Answer question 5 of the Book Chapter 9 on page 174.
5. Using the data in the table below, a price of $6 per unit for the output, a cost of $10 per unit of variable input, and a TFC of $200, compute the three total costs (TVC, TFC, TC) and
the three average costs (AVC, AFC, ATC) for each level of input/output.
Variable input (units)
0
10
20
30
Output (bushels)
0
35
75
105
40
50
a. What is the maximum total profit that can be made with the given prices? At what level of input/output is this attained?
b. To continue production in the long run, the output price must be equal to or above $
c. In the short run, production should stop whenever the output price falls below $
130
140