Farm management questions.

1. What is the advantage and limitation of “equity capital” for financing farm business.
2. Briefly discuss the importance of activity ratios
3. What criteria determine whether assets should be classified as current

Linear programming as a farm management tool has gone through an interesting history with a major breakthrough during the Second World War (WW II).

1. Unlike other tools such as budgeting , it is known as optimizing tool, why?
2. State the LP equation and set initial tableau for profit maximization objective function based on the following additional information.

1. Five activities X1, X2, X3, X4 and X5 are to be produced and associated Gross margin per ha in US $ 200, 260, 180, 75 and 110 respectively.
2. Four resources (i) are available; (i1) land 90 ha (i2)600 tractor hours, (i3) financial capital US $4500 and (i4) human labour 1200 hours for implementing both activities.
3. Amount of land resources (i1) for unit of activity X1, X2, X3, X4 and X5 is 1 ha each
4. Amount of tractor hours (i2) for a unit of activity X1, X2, X3, X4 and X5 is 10, 25, 20, 45 and 15 respectively.
5. Amount of financial capital (i3) required for a unit of activity ; X1, X2, X3, X4 and X5 is US$ 25, 45, 65, 80 and 15 respectively
6. Amount of labour hours(i4) required for a unit of activity; X1, X2, X3, X4 and X5 is 50,45,00, 9 and 20 respectively.

100. What is the value of Pivot element?

The Management of KATANI Ltd is considering the replacement of an old decorticating machine. It is fully depreciated but it can be used by corporation throughout 2015. If management decides to replace the old machine ; Alliance One Company has offered to purchase it for US$2,000 on replacement date. The old machine would have no salvage value in the year 2015. If the replacement occurs, a new machine would be paid in cash at the time of replacement. The new mchine is not expected to have any salvage value at the end of the year 2024. KATANI Ltd management requires all investiments to earn a 12% after tax return. The company`s tax rate is 40%.

1. Calculate the annual depreciation for the new machine using a double declining balance.
2. What is the carrying amount after four years of service?

To make a maximum amount of profits a business firm:

1. Will produce at that output at which its total revenue is a maximum (YES/NO)
2. Will not have to know anything about least -cost combination- which make its total cost of production of any output a minimum – in order to set its marginal revenue equal to its marginal cost (YES/NO) Why?
3. Will find out how much it costs to produce its product and then set a price which will cover these costs(YES/NO) Why?
4. Will use least-cost combination of factors for whatever output it finally decide to produce (YES/NO). Why?

Julian is having financial problems with his farm being able to provide the level of net income desired. He is considering switching a cow-calf enterprise to a yearling enterprise. Having successifully completed three years of Agricultural Education at SUA., this enterprising young rancher decided to use a partial budget technique to determine if the change should be mage.

He estimated he would have 2% death loss which would allow him to sell 196 head of yearlings weighing 750kg each at $87 per hundredweight. Total labor associated with the yearling enterprise is $3,200. He estimated feeder calves would cost $505/head and consume $1,800 of supplemental feed. Interest charge on the investment associated with the yearling enterprise is $3,800. He must purchase a $5,500 piece of new equipment for the yearling enterprise(figure annual charges at 10% of purchase price).

Mr. Julian determined annual costs for the new cow-calf enterprise to be

1. Feed $3,600
2. A replacement bull at $1,200/year
3. Labor  $5,400
4. Interest on cow herd investment  $7,000

In addition to a reduction in the previous listed costs associated with cow-calf herd, receipts would be reduced by $34,220 per year.

Determine the change in enterprises that should be made.

1. Outline how capital for investment in agriculture and related projects can be acquired and associated limitations
2. Give 4 (four) types of agriculture loan repayment plans
3. You have US$27,000 loan to be paid over 7 periods in equal installments. Fill in the Table below.

1. Briefly discuss the main financial needs of potential investors and the lenders
2. What is assets ownership cost. Define depreciation as per IAS 16 Plant Property and Equipment,
3. Why should managers keep records in the farm.

1. Define partial budget
2. Suppose you are conducting a research and you want to advise cashew smallholder farmers who currently use chemical insectcides to change to weaver and technology. Do a partial budget analysis of trees colonized by weaver and versus trees sprayed with normal chemical insectcides using the information below then answer the questions that follows.

1. What will be the new or added benefits?
2. What costs will be reduced or eliminated?
3. What will be the new or added costs?
4. What revenue will be reduced or lost?
5. What is the next benefit and benefit/ cost ratio?

1. Outline how capital for investment in agriculture and related projects can be acquired and associated limitations.
2. Give 4(four) types of agriculture loan repayment plans
3. You have US$ 20,000 loan to be paid over 7periods in equal installments. Fill in the table below.

1. Whar is the strength of LP compared to other farm management tools
2. Read the following information

1. Farm that produces Apples(x) and Oranges(y)
2. Each crop needs land, fertilizer, and time
3. 6 acres of land
4. 6 tons of fertilizer
5. 8 hour work day:
6. Apples sell for twice as much as oranges i.e 500 US$ compared to 250 US$/ acre
7. We want to maximize profit(z):2x+y=z
8. We can`t produce negative

• Formulate the LP problem
• By using graphical method advise the farmer the optimal crops combination that He /she must considered in the plan (production) if the objective is maximize profit within the limits of available resources. What is the revenue of the optimal production level?