Ans

werfo
rthefo
llo
wingTr
ueo
rfal
seands
hor
tans
werques
tio
nsi
ndet
ail
s:

Ji
mmaUni
ver
sit
y

Co
lleg
eofAg
ric
ult
ureandVet
eri
nar
yMedi
ci
ne

Depar
tmento
fAg
ric
ult
uralEc
ono
mic
sandAg
rib
usi
nes
sManag
ement

As
sig
nmentfo
rRur
alFi
nanc
e!(
Tot
almar
k30%)

PARTI:TRUEORFALS
E(10%)

Dec
idet
hefo
llo
wingS
tat
ement
swhet
hert
heyar
eTr
ueo
rFal
se(
0.5pt
.eac
h)

1. Mi
crofi
nanceisdefinedasasubs
etofrur
alfinancededi
catedt
ofinanci
ng
agri
cult
uralr
elatedac t
ivi
ti
ess
uchasi
nputsupply,pr
oduc
tio
n,di
str
ibüt
ion,who
les
ale,
pro
cessi
ngandmar keti
ng.

2. Weal
thmax
imi
zat
iondo
esno
tco
nsi
dert
her
isko
func
ert
aint
yoft
hefut
ureear
ning
s.

3. Ri
skr
efer
stoc
aseswher
ethepr
obab
ili
ti
eso
fdi
ffer
ento
utc
omesar
eunkno
wn.

4. Di
vers
ific
ati
ondo esnot
hingtor
educ
eri
ski
fthepo
rtfo
lioc
ons
ist
sofper
fec
tly
negat
ivel
ycorr
elatedasset
s.

5. St
andarddevi
atio
no fapo
rtfo
liowi
lldec
lineast
henumb
ero
fent
erpr
isesi
nthe
port
fol
ioi
ncr
eases.

6. Al
arg
epo
rtfo
liohaso
nlyamar
ketr
elat
edr
iskandr
elat
ivel
yli
ttl
esys
temat
icr
isk.

7. Ther
iskt
hatr
emai
nsaft
erdi
ver
sifi
cat
ioni
ssys
temat
icr
isk.

8. Opt
imalpo
rtfo
liopr
ovi
dest
hehi
ghes
tret
urnandt
hel
owes
tri
sk.

9. Thepri
maryfunc
tio
noft
heb
alanc
esheeti
stomeas
uret
hefi
nanc
ials
olv
enc
yoft
he
bus
ines
s.

10.Whentheamountofdeb
touts
tandi
ngisgr
eaterthanthevalueo
fasset
s,the
di
ffer
enceiscal
ledt
henetdefi
ci
tandthebusi
nessisi
nso
lventtot
heextent
.

11.Curr
entAss
etsc
o ns
isto
fcas
h,i
nvent
ory,ac
count
spayab
leando
theras
set
scas
il
y
conver
tedt
ocash.

12.Hi
gherdebtr
ati
osho
wst
hatmo
reo
fafi
rm'
sas
set
sar
epr
ovi
dedb
yowner
srel
ati
vet
o
cr
edit
ors
.

13.Theb
alanc
esheetpr
ovi
desac
ompl
etepi
ctur
eoffi
nanc
ialpr
ogr
esso
vert
ime.

14.Cas
hfl
ows
tat
ementpr
ovi
desus
efuli
nsi
ghti
ntot
her
eas
onsfo
rfi
nanc
ialpr
ogr
essand
 c
anas
sis
tinas
ses
singt
hepo
tent
ialfo
rfur
therg
ains
.

15.Ri
skandunc
ert
aint
ycanno
tbet
otal
lyel
imi
nat
ed.

16.Thes
afet
y-fi
rstr
uler
epr
esent
sac
ompr
omi
seb
etweent
hemax
imi
nandmax
imaxr
ules
.

17.Fi
nanc
ialmanag
ementi
simpo
rtantt
osho
wwhi
chpr
oduc
tso
rser
vic
esar
epr
ofi
tab
le.

18.TheMax
imi
nrul
eleadst
otheal
ter
nat
ivewi
thhi
ghes
tpo
ssi
lbl
einc
ome.

19.Fi
nanci
almanag
ementPr
ovi
desi
nfo
rmat
iono
nthes
izeo
fal
oanab
usi
nes
sçan
affo
rd.

20.Capi
tali
ncent
ivei
sco
nsi
der
edasdi
sadv
ant
ageo
fac
orpo
rat
ion.

PARTII:S
HORTANS
WER(
10%)

1. Dis
cusst
hedifferencebet
weenpro
fitmax
imi
zat
ionandweal
thmax
imi
zat
ion?Whi
ch
oneismoreappro
pr i
ate?Andwhy?

2. Ex
plai
nthemai
nob
jec
tiv
eoffi
nanc
ialmanag
enent
?

3. Ex
plai
nthedi
ffer
enc
ebet
weenb
usi
nes
sri
sksandfi
nanc
ialr
isks
?

4. Ex
plai
nthemo
sti
mpo
rtantc
redi
tins
trument
sthatus
edi
nfar
mcr
edi
ttr
ans
act
ions
?

5. Ex
plai
nthemai
nst
rat
egi
est
hatus
edt
oimpr
over
uralfi
nanc
ials
erv
ices
?

6. Di
scus
sthes
our
ceso
ffundsus
edt
oco
ntr
olc
api
talas
set
s.

7. Ifacompanyhasaver
yhighandlowcur
rentr
ati
o;whatki
ndsofprobl
emsare
sug
ges
tedbyaveryhi
ghcurr
entrati
o?Andwhatki
ndsoffinanc
ialpr
oblemsar
e
sug
ges
tedbyaveryl
owcurr
entrati
o?

8. Whatarethemajors
ourcesofpr
oducti
onr
iskandwhatt
ypeo
fis
uranc
eco
ver
agei
s
neededtopro
tec
tagains
tt ho
seri
sks
?

9. Whati
sthec
ostandb
enefi
tofmai
ntai
ningr
eser
ves
?

10.Whatb
enefi
tswi
llac
ont
rac
tpr
ovi
defar
mer
s?

PARTIIWORKOUTTHEFOLLOWING(
10%)

1. Assumeasing
lec
ropAanditshypo
thet
icalpo
ssib
leret
urns(
inmonetaryt
erms)and
theass
oci
atedpr
obab
ili
tyo
fo c
curr
enceoftheseret
urnsasi
ndi
catedinTabl
e1b el
ow.

Tab
le1:Es
timat
iono
fex
pec
tedr
etur
nandr
iskfo
ras
ing
leent
erpr
ise

Po
ssi
bler
etur
ns,Ei(
$) Pr
obab
ili
ty,(
%)P(
Ei)
150 0.
10

200 0.
30

250 0.
40

300 0.
10

350 0.
10

Co
mputetheexpec
tedret
urn,st
andar
ddev
iat
ion,andv
ari
anc
eoft
her
etur
ns.S
how
yo
uranswerbytabl
e!(
1.5poi
nts)

2. Assumet hat,thereisac ropAandBwi thpossibleret

unsandt hèprobabil
it
yo f
occ
ur renceoft hereturns.Ar easonablebasisfo rmeas uri
ngex pect
edr eturnispast
perfo r
mance.Fo rthetwoc roppingalternatives,hypotheticaldatao n10year sofpast
perfo r
mancear egiv
eni nTable2.Theal ternativeent erpri
sesill
ust
ratet hegeneral
problemo fsel
ec ti
ngapo rtfol
ioo fri
skyas s
et swhenr esourcesarelimited.Theli
mi t
ed
res
o urceisl
and,andt her i
skyas set
sar ecropsAandB.

Tab
le2:S
elec
tio
n'o
fal
ter
nat
iveent
erpr
ises

Ret
urnfo
rcr
opA Ret
urnfo
rcr
opB

1 272 172

2 176 128

3 208 184

4 296 204

5 124 164

6 352 156

7 384 124

8 284 180

9 96 188

10 68 120

a.Ident
ifythemoreri
skyb
usi
nessbyusi
ngthecoeffic
ientofvar
iat
ionandhighes
t
lo
werbound,andsel
ectt
healt
ernati
vethato
ffer stheleas
tamountofr
isk?(1.
5
 po
int
s).

b
. Whatist
hecov
ari
anceofrerunsfr
omcro
psAandB?Anddet
ermi
net
hec
o-
movemento
fthetwovar
iabl
es?(1.
5po
ints)

c
. Whatist
heco
rrelati
onco
effici
eńtbet
weenret
urnso
fthet
woc
rops
?Andi
nter
pret
ther
esul
tofcor
relati
oncoeffi
ci
ent
?( 1.
5po
ints)

d.If20% o
ft heavai
labl
ecropl
andi spl
antedtocropA,andtheremaining80% i
s
pl
antedtocropB,whatist
hev ari
anceandexpectednetret
urnofthisproduc
t
combi
nati
on?(Consi
derthedat ai
nTab l
e2).(1.
5point
s)

3. Ifafir
mhas$100ininventor
ies
,acurr
entrati
oequalt
o1.2,andaquic
krati
oequal
s
to1.
1,whati
sthefi
rm'sCur
rentass
ets(CA)andCurr
entli
abi
li
ti
es(
CL)
?( 1.
5po
int
s)

4. AFar mbusi
nesshadb i
rr80,687ontotall
iabi
li
ti
esonJanuar y1,2020.Dur
ingtheyear,
thecashflo
ws our
cesandus esst
atementindic
atesthatbir
r31,896ofdebtwasrepaid
andb i
rr39,305ofnewdebtwasadded.Fi ndtheli
ab i
li
ti
esattheèndo f2020
(January1,2021)?(0.
5point)

5. AFar mb us i
nesshad150, 109oftotalasset
so nJanuary1,2020.Duringtheyear,t he
capit
alependi tureofthefi rmwas9500,depr eci
ationwas2,617,andbeginningand
endinginv ento
r ywas26,984and28, 911,respecti
vel
y.Calc
ulatetheanountoft o
t al
asset
ssho wno nt hebal
anc esheetattheendo f2020(January1,2021)?(0.5point )

REFERENCES
:

Al
exanderHami
lt
onIns
tit
ute,Inc
,1998.Fi
nanc
ialManag
ementHandb
ook.US
A.

Bri
gham,E.F,LC.Gapens
ki,andM.C.Ehr
har
dt,1999.Fi
nanc
ialManag
enet
:Theo
ry
andPract
ice.TheDrydenPress
,Texas
.

Deg
yeGoshu,2008,Rur
alFi
nanc
e(Mo
dul
eIIfo
rdi
stanc
eeduc
ati
on)
,Har
amaya
Uni
ver
sit
y,Ethi
opia.

DegyeGoshuandMi
kleTes
faye,2008.Rur
alFi
nanc
e(Mo
dul
eIfo
rdi
stanc
e
educati
on),Har
amayaUniver
sit
y,Bthi
opi
a.

El
ton,E.andM.J.Gr
uber2001.Mo
der
nPo
rtfo
lioandInv
est
mentAnal
ysi
s:Jo
hnand
So
ns.Sing
apor
e.

Lee,W.
F.,M.
D.Bo
ehl
je,A.
G.Nel
son,andW.
G.Mur
ray(
1988)
.Ag
ric
ult
uralFi
nanc
e,s
th

edi
ti
on,Io
waS
tat
eUni
ver
sit
yPr
ess
,Ames
,Io
wa.
Khubchandani,B.
S.,2000.Pr
act
iceandLawo
fBanki
ng.TheIndi
anIns
tit
uteo
f
Bankers.New.Del
hi.

Dav
idK.2008.Manag
ingri
ski
nfar
ming
.Fo
odandag
ric
ult
ureo
rgani
zat
iono
fthe
uni
tednati
ons,r
ome2008.