Capital Budgeting in Galaxy Science Centre
Capital Budgeting encourages managers to accurately manage and control their capital expenditure. By providing powerful reporting and analysis, managers can take control of their budgets.
The purpose of this paper is to investigate capital budgeting decision under Galaxy Science Centre (GSC), which is non-profit organization. The need for such an analysis emerges from the case that only provides general information concerning the impact of capital budgeting decisions in the presence of strategic interactions among GSC. We are facing significant problems in different conditions, then through all given figures to make the best recommendations fro GSC.
Five issues will be told in this report. The first issue identifies which types of capital expenditure projects will be selected to achieve GSCЎ¦s objective, and the performance result. Second, to obtain a computer system, GSC can be either financed by bank loan or leased from Computer Company. Third, use the probability technique to calculate the budgeted admission price for the first year. The forth issue, concerns with how GSC can breakeven without support from the government. The last issue considers overall elements to set up a price policy for the gift shop. We attempt to figure out these issues as existing puzzle.
Issue 1
Galaxy Science Centre (GSC) is a non-profit organization, every dime it spends should be used according to their goal. The goal of GSC is to educate the general public, to support the science programs of local schools and to provide a science centre for the municipality. Therefore, the most amount of budget should be allocated to the Public relation department. The Public relation department is responsible...
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...management can compare actual results and targeted result easily.
„« Select option two to lease the XTZ system from Acem computers Ltd, since it carries lower PV.
„« The admission price for the first year should be $6 in order to cover the total cost.
„« Without government support fund in second year onwards, if GSC wants to breakeven, we will suggest using case 1 with a combination of gift shop. With a $520,000 as promotion expenditures, GSC still has a $20,000 lost that need to be covered. Generate profit from gift shop can get out of the lost. In case 2, it is non-sense to charge the preschool children a ticket price since it will conflict will our primary goal, which is to educate the general public. In case 3, it is difficult to persuade government to grant a $1,000,000 each year. Once the government stops funding, GSC may need to close down.
Our decision is that Mr. Butkus should choose to implement both options. The additional capacity is definitely needed, and the demand to fill the capacity is also present. We calculated the possible revenue that could be earned under two sections: Low additional demand and High additional Demand. The additional revenue generated in these two scenarios are $42 900 and $31 200, respectively. Also, the in both of these scenarios, the time needed to pay for the cost of the required expansions are less than a year.
Budget Allocation: After learning from the mistakes in the stage 1, Allstar changed its Budget Allocation method to be more in line with the market trend, and also factored the lifecycle stage of the product. The allocation of the budget in Periods 3,4 & 5 was Advertising 35%, Promotion 35% and Sales Force 30%. Allstar tried to balance its budget effectively and it showed up in the Social Media comment section, “No trouble finding it, Good price, Good Value, like the display, Easy to find”. Similarly the value for Allround+ was being noticed by the targeted segment.
Capital budgeting is how a firm decides whether it should invest in a project. To determine if a project should be invested in, firms use methods such as net present value and internal rate of return to analyze the projected cash flows. Firms should choose projects that increase its value.
The first year becomes the operating budget for which subsequent years follow. However, the first year should only be used as a template for the following years, because there may be changes in priorities as well as an update in cost estimates for the implementation of the different projects. The implementation is linked to a strategic plan and community development which results in long-term planning and an establishment of city priorities. While the plan can be beneficial to the city’s citizens, the most important aspect of the plan is the funding allocated to the different projects. Funding typically comes from paying as the development happens, or through debt financing. Paying as the development happens is beneficial because there is no interest cost, no cost to issue debt, and no future burden. On the other hand, sometimes there are not enough funds to allocate as the project is implemented which limits the opportunities to be had. For debt financing, development is accelerated which results in proactive growth, development, and intergenerational equity. However, debt financing creates a fixed obligation, in addition to an added cost of interest and debt issuance. All in all, it is perhaps important to consider, that the money used on the front end or on the back end will be paid for by
The Cost-Benefit Analysis/Budget explains the time it will take to cover the class each week and cost of snacks that will be provided weekly for the duration of the program of 4-6 weeks. The participants will attend weekly sessions of 2 hours per week. For each session, there will be snacks provided adding up to $100.00 per month. The potential expenses from the project will be $125.00 for the six weeks.
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Based on the optimal capital structure analysis, they should pursue as 70% debt proportion, which will give them the lowest cost of capital at 11.58%. Currently Star has no debt in their capital structure, so these new projects should begin to add debt to the company. However, no matter what debt and equity proportions are chosen for each project, the discount rate of 11.58% should be used, as the capital budgeting decisions should be independ...
Finally, Welch (2008) established from his research that 75% of finance academics recommend using the CAPM for commercial capital budgeting purposes, 10% commend the Fama French model and only 5% recommend an APT model. Therefore, Sharpe and Lintner’s CAPM is a beneficial framework.
The success of capital investment projects varies and it is sensitive to numerous factors. A particular belief is that the failure of capital investment projects is pegged to the fact that the adjacent decisions are made in an improper manner, that the resources are poorly allocated and that the correc...
The capital budget includes all nonrecurring items such as capital expenditures and the purchases of durable items. The capital budget is normally associated with our long-term financial goals. (Yacht, 2009)
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