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Junior and Senior level Ag Bus. | |Colorado Agriscience Curriculum

|Section: |Advanced Agribusiness |

|Unit: |Agricultural Business Records |

|Lesson Title: |Debt Repayment |

|Colorado Ag Education Standards|AGB11/12.03 - The student will be able to formulate and analyze financial records and use the information for|

|and Competencies |evaluation and planning. |

| | |

| |Determine capital debt repayments capacity. |

| | |

|Colorado Model Content |Math Standard 1: Students develop number sense and use numbers and number relationships in problem-solving |

|Standard(s): |situations and communicate the reasoning used in solving these problems. |

| | |

| |Math Standard 6: Students link concepts and procedures as they develop and use computational techniques, |

| |including estimation, mental arithmetic, paper-and-pencil, calculators, and computers, in problem-solving |

| |situations and communicate the reasoning used in solving these problems. |

| |English Standard 1: Students read and understand a variety of materials |

| |English Standard 4: Students apply thinking skills to their reading, writing, speaking, listening, and |

| |viewing |

| | |

| |English Standard 5: Students read to locate, select, and make use of relevant information from a variety of |

| |media, reference, and technological sources. |

|Student Learning Objectives: |Using what they learned in the earlier cash flow lesson, this lesson should be easy to understand and serve |

| |as a refresher on the earlier lesson. |

|Time: |50 minutes |

|Resource(s): |All-inclusive, but could reference Financial Statements: Cash Flow lesson. |

|Instructions, Tools, Equipment,|Italicized words are instructions to the teacher, normal style text is suggested script. |

|and Supplies: |Lesson, computer, LCD projector, handout |

|Interest Approach: |Start by showing [Slide 1] and asking the class what they think the approximate national debt is. The |

| |following web link has the national debt clock on it. An early 2007 clock is pasted onto slide 2. You could |

| |update the slide based on that days, or show this web site if desired. |

| |After a few guesses show [Slide 2]. Let them know that they will be learning about debt repayment today and |

| |then do a Descartes Moment to see what they know. |

| | |

| |Using the Descartes Moment (e-moment) ask the following three questions and give students 1-3 |

| |minutes/question to write a letter to themselves. (Descartes was a writer and philosopher.) |

| |Pose the three questions. As you begin the unit or lesson, pose the following three questions to your |

| |students: What do you know about this topic? What do you think you understand about this topic? What do you |

| |not understand about this topic? Note: You may want to introduce students to the questions one at a time to |

| |focus their thinking. |

| | |

| |Students write letters to themselves. Students compose a letter to themselves explaining what they know, what|

| |they think they know, and what they don’t understand about the topic. Allow about one to three minutes for |

| |thinking and writing on each question. |

| | |

| |Have students share aloud after the first two questions to stimulate other students’ thinking. |

| | |

| |Collect the letters. The information is valuable for your lesson planning and assessment. |

| | |

| |Ask, |

| |“What do I know about debt repayment?” |

| |“What do I think I know about debt repayment?” |

| |“What don’t I know about debt repayment?” |

|Objective 1: |Understand what debt is and why it is important to manage it( [Slides 3 & 4] |

| |Discuss material on slide 3 using the Little Professor Moment. |

| | |

| |Description |

| |When we teach something we tend to learn it better. During the Little Professor Moment, portions of the |

| |content are taught to half the students at a time. Then, students take turns being “Little Professors” to |

| |their partners. Here’s how you can set it up. |

| | |

| |Process |

| |Chunk your lesson. Determine the portions of information. Make the portions uniform both in amount and number|

| |so that the time spent teaching each group of students is approximately the same. |

| |Establish roles. Each student exhibits two roles—one while they are taking notes and one while they wait. |

| |While they learn from you, they are eager learners, full of wonder and interest. While they wait, they are |

| |the “invisible person,” sitting still and neither moving nor speaking. Note: Some students may find being |

| |“invisible” too challenging. Instead of sitting still and silent, they can read. |

| |Establish personas. Review with students the characteristics of a stereotypical university professor. As they|

| |teach the new material they act as if they have their PhD in the subject area, and from this point forward |

| |are referred to by their peer as Dr. (fill in their last name). For ease of teaching, address the first |

| |student in each pair as Professor I and the second student as Professor II. |

| |Teach the first chunk. Little Professor I listens and takes appropriate notes. Keep this short and to the |

| |point. Little Professor I then teaches his or her partner. This is a timed event! Give them only 30 to 60 |

| |seconds to instruct. Before moving to the second chunk of information, check Little Professor II’s |

| |understanding. |

| |Teach the second chunk. Now it’s Little Professor II’s turn to take notes. Little Professor II will then |

| |teach his or her partner. |

| |Repeat the cycle. Repeat steps 4 through 7 for as many chunks of information there are. |

| | |

| |Debt is that which is owed; usually referencing assets owed. In the case of assets, debt is a means of using |

| |future purchasing power in the present before income has been earned. |

| | |

| |A debt is created when a creditor agrees to loan a sum of assets to a debtor. Debt is usually granted with |

| |expected repayment; in most cases, plus interest. |

| | |

| |Discuss material on slide 4 using the Little Professor Moment. |

| | |

| |Management of debt is crucial for maintaining financial liquidity and avoiding undue risk. |

|Objective 2: |Understanding borrowing( [Slide 5] |

| |Discuss material on slide 5 using the Little Professor Moment. |

| |For most farmers, borrowing is essential and provides a major source of funds for operating the business. |

| |Can work to your advantage at times |

| |Should be avoided at other times |

|Objective 3: |Understanding Leverage( [Slides 6 & 7] |

| |Discuss material on slide 6 using the Little Professor Moment. |

| |Expressed as a ratio of debt to net worth. |

| |Borrowing (Increasing leverage) can be effective during periods when: |

| |Earnings are relatively good |

| |Interest rates are low |

| |Rate of inflation is high |

| |Under opposite conditions, it’s best to wait for a more opportune time to buy land, expand an enterprise, or |

| |make other capital expenditures |

| |Discuss material on slide 7 using the Little Professor Moment. |

| |The use of borrowed capital to increase the potential return of an investment. |

| |The amount of debt used to finance a businesses assets. A business with significantly more debt than equity |

| |is considered to be highly leveraged. |

| | |

| | |

|Review/Summary: |Repeat the Descartes Moment from the Introduction and let the students re-assess what they know about debt |

| |repayment. |

|Application--Extended Classroom|Use the Excel worksheet to estimate repayment ability. It can be printed as a handout or students can go to |

|Activity: |the computer and use it. The formulas have been included. It is simple addition and subtraction. Another |

| |option would be to use the completed cash flow from the Financial Statements: Cash Flow lesson and use the |

| |totals column to calculate debt repayment ability. |

| |You can also use the Evaluation Tool as the Application – Extended Classroom Activity. |

|Application--FFA Activity: |Farm Management Contest. |

|Application--SAE Activity: |When updating record books, have students calculate their debt repayment ability. |

|Evaluation: |See Debt Repayment Evaluation. Use Excel Spreadsheet (on computer or as a handout) for students to complete |

| |the Evaluation. |

|Evaluation Answer Key: |See Debt Repayment Evaluation Key. |

|Other: | |

|Debt Repayment Activity |

| |

|Name:__________________________________ |

| |

| |

|Please read the scenario and enter the numbers into the spreadsheet to calculate debt repayment ability. |

| |

|I own a farm and have a job in town. My job in town earns me $32,456 per year. The farm has an average gross annual income of $120,000. The|

|farm’s net income is about $60,000 after expenses are taken into account. Of the expenses, $15,000 of that is interest expense. Our family |

|living expenses are $2500 per month. Our machinery loan has an annual payment of $10,000 including interest and the land payment is $31,973 |

|including interest. |

| |

|Use the remainder of this piece of paper to do any calculations. Staple this to the spreadsheet and turn it in. |

| |

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