Question

Crops & feed revenue	145,600
Livestock and livestock product revenue	215,300
Total nonfarm income	12,000
Total farm operating expenses	252,629
Depreciation expense	50,526
Income tax expense	10,827
Interest expense	64,962
Withdrawals for family living	28,000
Principal payments on unpaid operating debts	0
Principal payments on current portions of debt & leases	29,890

1) Calculate capital replacement and term debt repayment capacity for LongView Farms.

2) Calculate capital replacement and term debt repayment margin (CRDRM) for LongView Farms.

3) Solve the percent that crop revenue and livestock revenue can decline and still maintain positive CRDRM.

4) Solve the percent operating expenses and interest expenses can increase and still maintain positive CRDRM.

Answer 1

Calculation of Net Farm Income from Operations as -

Gross Farm Revenues - Crop and feed Revenues Livestock and Livestock Product Revenues	$145,600 $ 215,300	$360,900
Less : - Total farm operating expenses		($252,629)
EBITDA		$108,271
Less : - Interest Expense		($64,962)
Net Farm Revenue from Oprations		$43309

Calculation of Capital Debt Repayment Capacity & Margin and Replacement Margin as -

Net Farm Revenue from Oprations	1	$43309
Total Non-farm Income	2	$12000
Interest Expense on Term Debt	3	0
Depreciation Expense	4	$50526
Family Expense	5	$28000
Income tax Expense - self	6	$10827
Capital Debt Replacement Capacity [(1+2+3+4)-(5+6)]	7	$67008
Principle payment of Debt & Leases	8	$29890
Unpaid Oprating Debts	9	0
Capital Debt Repament Margin [7-(3+8+9)]	10	$38000
Cash Used for Capital Replacement	11	0
Replacement Margin (10-11)	12	$38000
Term Debt & Capital Lease Coverage Ratio [7/(3+8+9)	13	224.18%
Replacement Margine Coverage Ratio [7/(3+8+9+11)	14	224.18%