Lesson 2.2 The Cost of Doing Business Review

A farmer purchases a grain storage bin for $12,000. It has an estimated salvage value of $2,000 and a useful life of 10 years. What is the annual depreciation expense using the straight-line method?

• $800

• $1,000

• $1,200

• $1,400

Why do businesses calculate depreciation?

• To determine the market value of their assets each year

• To reduce taxable income by spreading out the cost of an asset over time

• To prepare for purchasing new equipment

• To track cash flow more accurately

Which of the following is considered a noncash expense in a business?

• Purchasing livestock

• Paying employee wages

• Depreciation on farm equipment

• Buying fertilizer

The salvage value of an asset refers to:

• The amount an asset is worth when it is fully depreciated

• The amount a business pays for repairs over its useful life

• The total value lost from depreciation

• The cost of replacing an asset with a new one

A student borrows $10,000 for 6 months at an annual interest rate of 4%. What is the total interest expense?

• $200

• $250

• $300

• $400

What does the term loan principal refer to?

• The total amount borrowed before interest

• The amount a borrower repays monthly

• The interest charged on a loan

• The final amount owed after interest is applied

If a business loan has a higher interest rate, what happens to the total cost of borrowing?

• It decreases because payments are spread out

• It stays the same as long as the loan term remains unchanged

• It increases because more interest is charged over time

• It depends on the type of asset being financed

A dairy business has $50,000 in revenue and $35,000 in expenses (including labor costs). What is the net income?

• $10,000

• $15,000

• $20,000

• $25,000

A positive net income means:

• The business is making a profit

• The business has no outstanding debts

• The business does not need to track expenses

• The business has no financial risks

A farm has $8,000 in net income and $40,000 in total assets. What is its return on assets (ROA)?

• 5%

• 10%

• 15%

• 20%