When Interest Rates Rise, Farm Profits

question 11

Multiple Choice

When interest rates rise, farm profits

• A) Increase because the value of farm assets varies directly with interest rates.
• B) Decrease because the value of farm assets varies directly with interest rates.
• C) Decrease because interest rates represent a major cost for farm production.
• D) Are not affected.

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Definitions:

Gross Profit Ratio

A profitability ratio calculated as gross profit divided by net sales, indicating the percentage of sales revenue that exceeds the cost of goods sold.

Average Cost

A method for inventory valuation that calculates the cost of goods sold and ending inventory based on the average cost of all items purchased.

Retail Inventory Method

An accounting process used by retailers to estimate inventory value by converting the retail value of inventory to a cost basis, based on the relationship between cost and retail price.

Ending Inventory

The value of goods available for sale at the end of an accounting period.