Agribusiness Credit and Finance
Terms
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- Deed of Trust
- Security agreement for real property
- Lender
- Beneficiary
- # of Days after forclosure to pay past due P&I and late fees to become reinstated
- 90
- Loans greater than 1 year
- Term Debt
- Another Term for a "Loan Grantor"
- Underwriter
- Non-Revolving Line of Credit
- Can borrow up to limit in strict accordance with cash flow budget
- Reciporical To Sinking Fund
- Future value of annuity
- 3 business management activities
- Production, Marketing, and finance
- Total interest over the term of a loan=?
- Periodic Loan payment x # periods - total borrowed
- Proper Cash Flow Budget
-
Beginning cash balance
+Cash Inflows
=Cash Available
-Cash Outflows
=Excess/deficit
+Borrowed LOC principal
-LOC interest payback
-LOC principal Payback
=Ending Cash Balance - What comes first in account entries of good form?
- List Debits (left side) first
- Security agreements
- Collateral Forfeited in case of default
- Statement that measures company performance
- Income Statment
- NFIFO
- =Gross revenues- operating expenses& interest expense
- Effective Leverage
- Rate of Return on farm equity great than rate of return on farm assets
- Current Ratio Ag lending standard
- >1.25:1
- Profitability measure
- Rate of return on farm assets
- Payback method is measured in?
- Years
- When IRR= Discount Rate, what is NPV?
- Zero
- When Cost of Capital goes down, NPV?
- Goes Up
- When B/C is negative, and PVin<PVout , NPV=?
- Between 0 and 1
- Simple rate of return
- =Annual net income/ Initial investment made
- APR is the same as:
- THe internal rate of return (IRR)
- Is the principal portion of a loan payment tax deductible?
- No
- Tax Benefit from Depreciation Expense=
- Depreciation expense x (t)-tax rate
- Shape of the dominating set
- Upward sloping to the right
- Define Business Risk
- A variation in returns
- Two methods of asset valuation
- Historical Cost, and market value
- Market Value
- Historical cost of an asset- accumulated depreciation
- Historical cost
- The original cost of an asset, accumulated depreciation is not accounted for
- Definition: Finance
- ANything to do with the sources and uses of funds
- Production
- Combining inputs to create an output
- Sources of funds
- Equity, revenues, sale of capital assets, repayment of debts, withdrawals
- Uses of Funds
- Operating expense, purchase of capital assets, repayment of debt, withdrawals
- Points
- Interest paid before loan is funded, 1pt= 1% of original price
- Short term loan
- Loan<1 year
- Intermediate term loan
- loan from 1-10 years
- Long term loan
- Greater than 10 years
- Simple interest formula
- I=PRT
- Future value of a dollar
- FV=(PV)(1+i)^n
- Present value of a dollar
- PV= FV/(1+i)^n
- Present Value of an Annuity
- PVA= 1-(1+i)^-n/ i
- Future Value of an Annuity
- FVA= (1+i)^n-1/ i
- Equal payment amortization
- = i/1-(1+i)^-n
- Sinking fund
- =i/(1+i)^n-1
- Capital Budgeting
- the process of planning expenditures on assets with a productive life of>1yr ie- capital assets
- Net present Value=
- Sum PVinflows- Sum PV outflows
- Benefit cost ratio
- Sum PV inflows/ Sum PV outflows
- IRR
- discount rate at which SUM PV inflows= SUM PV Outflows
- IS deprecition expense accounted for in Capital budgeting?
- No
- Cost of Capital Formula
- Kc= WdKd+ WeKe
- Kc
- Cost of Capital as a rate
- Wd
- Debt to asset ratio
- Kd
- cost of debt (interest expense/ total lia)
- We
- Equity to asset ratio (total OE/ total assets)
- Ke
- Cost of equity (rate)
- Income tax effects cash how in cap budgeting?
- It is seen as a cash outflow
- Taxable cash income=
- Taxable cash revenues- taxable cash expenses
- After tax net cash inflow
- (taxable cash income)(1-t)+ (depreciation expense)(t)
- Net cash flow
- =Principal+interest+tax benefit
- Leasing PV
- = Net cash flow x PV factor(1+i^-n)
- Balance sheet
- Assets= Liabilities+ Owners equity (ALOE)
- Income statment
- Revenues- expenses= net income
- Owners equity
- Balance- Owner withdrawals= net income
- Statement of cash flows
-
Cash Flow from operations
+cash flows from investing
+cash flows from financing
= net cash - Liquidity Ratios
- Current ratio, working capital
- Solvency ratios
-
Debt to equity
Debt to asset
Equity to asset - Profitability Ratios
-
Asset turnover
Return on farm equity
Operating profit margin ratio
ROFA - FFSC Income statement format
-
Gross Revenue
-Operating expenses
-interest expense
= net farm income from farm operations
+/- gains or losses on sale of Cap asset
=Net farm income
+/-Misc rev/expenses
-income tax
= net income - Cash system
- Revenues recognized when payments recieved, expenses when paid
- Accrual system
- Revenues recognized when earned/ expense when incurred