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Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans Notes Page
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Types of Loans
Money should be borrowed…
Factors that influence how much a business can safely borrow
Leverage
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans Notes Page
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Credit Instruments
Interest
Simple Interest
Compound Interest
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans Notes Page
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Amortized Loan
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.1
Types of Loans
SOURCE TYPE OF LOAN LOAN CHARACTERISTICS
Farm Credit System
Commercial Banks
Savings and Loans
Government Agency:
Farm Service Agency
Government Agency:
Small Business
Administration
Insurance Companies
Venture Capital
Dealers/Suppliers
Individuals
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.1 KEY
Types of Loans
SOURCE TYPE OF LOAN LOAN CHARACTERISTICS
Farm Credit System Short, intermediate,
and long-term loans
Provides short, intermediate and long-term loans for land, equipment, inventory,
business assets, and operating loans for production agriculture and agribusinesses
Commercial Banks Short, intermediate,
and long-term loans
Loan money for almost anything – real estate, inventory, capital assets, etc.
Payment schedule requires a single payment or periodic payments of interest and
principal
Savings and Loans Long-term loans Real estate, housing, etc.
Government Agency:
Farm Service Agency
Provides direct and government-guaranteed farm loans to persons engaged in
agricultural production who will be owner(s) or operators of an agricultural
production operation or facility when the loan is closed
Makes loans for farm ownership, soil and water conservation improvements,
operating expenses, and emergency purposes
Government Agency:
Small Business
Administration
Short, intermediate,
and long-term loans
Primarily guarantees loans made by private lenders to entrepreneurs and small
businesses
Insurance Companies Short, intermediate,
and long-term loans
Allow individuals to borrow against the cash surrender value of their life insurance
policy to make purchase
Venture Capital Money that can be invested in the ownership of a business
May involve selling stock on the open market to investors or taking on partners
Dealers/Suppliers Short, intermediate,
and long-term loans
Loan almost exclusively on the product dealer is selling:
Cars, tractors, feed, fertilizer, greenhouse, etc.
Individuals Short, intermediate,
and long-term loans
Loaned primarily for the sale of real estate with owner financing personal loans to
relations and friends
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.2
Simple Interest
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Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.3
Compound Interest
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Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.4
Calculating Interest
Jared is buying a new car and plans to take out a loan from the bank. He is taking out a 5-year
loan for $12,000 at 7% interest. What would the simple interest after six months be?
A farmer is purchasing a new baler at a cost of $26,000. His dealer will finance the baler under
the following terms: 10% down payment with the balance repaid in equal payments over the
next 6 years at 7% APR. How much interest will the farmer pay the first year of the loan?
On March 1, Anna borrowed $3,000 to buy bedding plants. On October 1 of the same year, she
repaid the $3,000 along with $131.25 interest. What annual interest rate did Anna pay?
On March 1, Kate borrowed $25,000 to plant corn. On November 1 of the same year, she repaid
the $25,000 along with $1,541.67 interest. What annual interest rate did she pay?
A $50,000 loan amortized at 8% interest for 20 years yields annual payments of $5,092.61.
How much of the first year’s payment is principal?
For the above loan of $50,000, if the 20th and final payment includes $377.23 interest, what was
the outstanding principal balance after the 19th payment?
For the above loan of $50,000, how much total interest is paid over the life of the loan?
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.4
Complete the amortized loan chart for 20-year, $50,000 loan at 8% interest on the previous page.
Year Principal Interest P + I Loan Balance
1 $5,092.61
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
TOTALS
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.4 KEY
Calculating Interest
Jared is buying a new car and plans to take out a loan from the bank. He is taking out a 5-year
loan for $12,000 at 7% interest. What would the simple interest after six months be?
I = prt
12,000 x .07 x .5 = $420
A farmer is purchasing a new baler at a cost of $26,000. His dealer will finance the baler under
the following terms: 10% down payment with the balance repaid in equal payments over the
next 6 years at 7% APR. How much interest will the farmer pay the first year of the loan?
$26,000 x .10 = $2,600 down payment
$26,000 - $2,600 = $23,400
$23,400 x .07 = $1,638
On March 1, Anna borrowed $3,000 to buy bedding plants. On October 1 of the same year, she
repaid the $3,000 along with $131.25 interest. What annual interest rate did Anna pay?
Figure loan length = March 1 – October 1 = 7 months
131.25 / 7 months = $18.75 paid each month
$18.75 x 12 to figure annual rate = $225
$225 / $3,000 = .075 = 7.5%
On March 1, Kate borrowed $25,000 to plant corn. On November 1 of the same year, she repaid
the $25,000 along with $1,541.67 interest. What annual interest rate did she pay?
Loan length = 8 months
$1,541.67 / 8 months = $192.71 per month
$192.71 x 12 = $2,312.52
$2,312.52 / $25,000 = .0925 = 9.25%
A $50,000 loan amortized at 8% interest for 20 years yields annual payments of $5,092.61.
How much of the first year’s payment is principal?
$50,000 x .08 = $4,000 interest paid in first year
$5,092.61 - $4,000 = $1,092.61
For the above loan of $50,000, if the 20th and final payment includes $377.23 interest, what was
the outstanding principal balance after the 19th payment?
Amortized loan, so all loan payments are $5,092.61 as stated above
$5,092.61 - $377.23 = $4,715.38
For the above loan of $50,000, how much total interest is paid over the life of the loan?
Annual payments of $5,092.61 for 20 years = $101,852.20
$101,852.20 - $50,000 (loan amount) = $51,852.20 total interest paid
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.4 KEY
Complete the amortized loan chart for 20-year, $50,000 loan at 8% interest on the previous page.
Year Principal Interest P + I Loan Balance
1 $5,092.61
2 $5,092.61
3 $5,092.61
4 $5,092.61
5 $5,092.61
6 $5,092.61
7 $5,092.61
8 $5,092.61
9 $5,092.61
10 $5,092.61
11 $5,092.61
12 $5,092.61
13 $5,092.61
14 $5,092.61
15 $5,092.61
16 $5,092.61
17 $5,092.61
18 $5,092.61
19 $5,092.61
20 $5,092.61
TOTALS
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.5
Credit and Loan Info Gram
Create the info grams to teach the following concepts:
1. Types of loans, liability ratio, leverage, and its benefit to a business
2. Credit institutions and types of loans
3. Interest
Register for a free account on http://infogr.am/. Get started by choosing any format for each of
the info grams. When finished, click “share” and then “share privately.” E-mail link to teacher
at ___________________________________.
Info Gram Scoring Guide
Info Gram #1
Info gram adequately teaches types of loans, liability ratio, leverage, and its benefit to a business
20 15 10 5 0
Info gram is neat with organized information that is easy to understand
20 15 10 5 0
Info Gram #2
Info gram adequately teaches about credit institutions and types of loans
20 15 10 5 0
Info gram is neat with organized information that is easy to understand
20 15 10 5 0
Info Gram #3
Info gram adequately teaches about interest
20 15 10 5 0
Info gram is neat with organized information that is easy to understand
20 15 10 5 0
Total: _____________________ / 120 points
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.6
Credit and Loans Alternative Evaluation
1. It is profitable for a business to borrow money to expand when the borrowed money
____________________.
a. Returns more than the cost of borrowing money
b. Can be secured at a low interest rate
c. Can improve the level of production
d. Will increase volume of business
2. A bill of lading is a ______________________.
a. Receipt for a good in transit
b. Contract specifying terms and payments
c. Written promise to pay
d. Receipts for stored grain
3. Leverage _______________________________.
a. Is the use of borrowed funds with one’s own to increase buying power
b. Raises rate of return if profitable
c. Results in larger loss if not profitable
d. All of the above
4. Which of the following is a source for a loan?
a. Farm Credit System
b. Life insurance company
c. Individuals
d. All of the above
5. When borrowing money, it is important to compare the _________________________ to
determine the true interest rate.
a. Annual percentage rate
b. Simple interest rate
c. Discounted interest rate
d. Compounded interest rate
6. How is simple interest figured?
7. What is compound interest?
8. What is an amortized loan?
9. Jared is buying a new car and plans to take out a loan from the bank. He is taking out a
5-year loan for $12,000 at 7% interest. The simple interest after six months would be?
Agribusiness Planning & Analysis AP6 Credit and Loans
Agribusiness Planning & Analysis: Credit and Loans AP6.6
10. On March 1, Kate borrowed $25,000 to plant corn. On November 1 of the same year, she
repaid the $25,000 along with $1,541.67 interest. What annual interest rate did she pay?
11. A $50,000 loan amortized at 8% interest for 20 years yields annual payments of
$5,092.61. How much of the first year’s payment is principal?