Reducing Budget Risk by Using Probabilities
AbstractThis paper emphasises the importance of budgeting for a family run firm. It concentrates on the inadequacy of the typical budget forecast that is shown to firm owners and lenders. This original budget is changed to a useful indicator of the firm's future by incorporating risk, using probabilities and a decision tree. Without this incorporation the firm can misallocate its anticipated net income between family salary, firm re-investment and debt reduction. The final budget, adjusted to the individual firm's risk calculations, produces a weighted net income. This number is a more realistic one for allocating salary, investment and principal.
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Bibliographic InfoPaper provided by International Farm Management Association in its series 14th Congress, Perth, Western Australia, August 10-15, 2003 with number 24352.
Date of creation: 2003
Date of revision:
Agricultural Finance; Risk and Uncertainty;
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