VARIABLE AMORTIZATION AND FINANCIAL CONTROL UNDER UNCERTAINTY: APPLICATION TO TEXAS RICE FARMS.

摘要

This study was designed primarily to determine the effects of farm financial control process, including variable amortization, as a means of responding to financial risk by the rice farmers in the Texas Coast Prairie area. The principal objectives were (1) to develop a model for rice farm performance over time that reflects the incidence of farm production, price variation and government programs, (2) to implement the financial control process and analyze the effects of variable amortization, asset liquidation, and other relevant risk responses on farm financial performance and risk bearing capacity over time, and (3) to identify and evaluate farm financial management strategies for effectively managing price and yield risks.;The farm under VAPP, in both the models, consistently maintained a higher net worth than in the other two plans primarily because of the asset value of debt reserve account and interest payments therefrom. Superior economic performance, such as, the lowest average debt to equity ratio, the second highest average net cash flow and the highest average net income before intermediate and long-term debt servicing were attained by the farm under VAPP loan conditions. In all the above cases, the farm under VAPP experienced the lowest coefficient of variation.;On average, the farm under VAPP borrowed more short-term credit to operate a large farm than in the other two plans. The average annual borrowings from credit reserve were the lowest under VAPP in both the model situations. However, the need for borrowing from credit reserve for liquidity purposes was somewhat reduced under Model II due to deficiency payments received by the farm. Overall, the farm held sufficiently large amounts of liquid reserves under all loan plans. The use of lower leverage generated smaller real estate credit capacity resulting in smaller credit reserves for the farm under Model II.;The reserve account balance grew to a sizable amount under Model I and at the end of the modeled period, was sufficient to retire the beginning outstanding loan. On balance, under the conditions of the study, the net worth, net income and net cash flow positions of the farm under VAPP were better than under the other two plans. The indexation feature, insurance plan and the mandatory debt reserve account reduced risk of default for the farm just as they did for the lender.;Two models were developed by varying the real estate debt to equity ratio and government programs. Both recursive linear programming and simulation procedures were used. The economic performance of the farm was observed and analyzed under three alternative loan plans. They were (1) Fixed Interest and Fixed Amortization, (2) Variable Interest and Fixed Amortization, and (3) Variable Interest and Variable Amortization or VAPP.