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Essay on Capital Budgeting | Functions | Financial Management

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Essay on Capital Budgeting

Essay Contents:

• Essay on the Techniques of Capital Budgeting

Essay # 1. Definition of Capital Budgeting:

Capital budgeting refers to the process a firm uses to make decisions concerning investments in the long-term assets of the firm. The general idea is that the capital, or long-term funds raised by the firms are used to invest in assets that will enable the firm to generate revenues several years into the future.

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Some of the definitions of capital budgeting are:

Capital budgeting is the process by which the financial manager decides whether to invest in specific capital projects or assets.

Capital budgeting (or investment appraisal) is the planning process used to determine whether a firm’s long-term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing.

Capital budgeting is a method of evaluating investment proposals to determine whether they are financially sound, and to allocate limited capital resources to the most attractive proposals.

Essay # 2. Meaning of Capital Budgeting:

The term ‘capital budgeting’ is used interchangeably with capital expenditure decisions, capital expenditure managements, long-term investment decision, management of fixed assets and so on.

The budget provides a guidance as to the amount of capital that may be needed for procurement of capital assets during the budget period. The budget is prepared after taking into account the available productive capacities, probable reallocation of existing assets and possible improvement in production techniques. If necessary, separate budgets may be prepared for each item of assets, such as a building budget, a plant and equipment budget, etc.

The capital budgeting decision, therefore, involves a current outlay or series of outlays of cash resources in return for an anticipated flow of future benefits. In other words, the system of capital budgeting is employed to evaluate expenditure decisions which involve current outlays but are likely to produce benefits over a period of time longer than one year.

Capital expenditure management includes addition, disposition, modification and replacement of fixed assets.

Following are the basic features of capital budgeting:

(a) It has potentially large anticipated benefits.

(b) It has a relatively high degree of risk.

(c) It has a relatively long-time period between the initial outlay and the anticipated return.

Essay # 3. Importance of Capital Budgeting :

1. Capital budgeting decisions are of paramount importance in financial decision-making. Such decisions affect the profitability of a firm. They also have a bearing on the competitive position of the enterprise. Capital budgeting decisions determine the future destiny of the company.

An opportune investment decision can yield spectacular returns. On the other hand, an ill-advised and incorrect investment decision can endanger the very survival even of the large-sized firms. A few wrong decisions and the firm may be forced into bankruptcy.

2. A capital expenditure decision has its effect over a long time-span and inevitably affects the company’s future cost structure.

3. Capital investment decisions, once made are not easily reversible without much financial loss to the firm. It is because there may be no market for second­hand plant and equipment and their conversions to other uses may not be financially feasible.

4. Capital investment involves costs and the majority of the firms have scarce capital resources this underlines the need for thoughtful, wise and correct investment decisions, as an incorrect decision would not only result in losses but also prevent the firm from earning profits from other investments which could not be undertaken for want of funds.

Essay # 4. Difficulties in Capital Budgeting :

Capital expenditure decisions are of considerable significance to the firm as the future success and growth of the firm depends heavily on them. Unfortunately, they are not easy to take.

There are a number of factors responsible for this:

1. The benefits from investments are received in some future period. The future is uncertain. Therefore, an element of risk is involved. A failure to forecast correctly will lead to serious errors which can be corrected only at considerable expense.

2. Problems also arise because costs incurred and benefits received from the capital budgeting decisions occur in different time periods. They are not logically comparable because of the time value of money.

3. It is not often possible to calculate in strictly quantitative terms all the benefits or the costs relating to a particular investment decision.

Capital budgeting decisions can be of two types :

(i) Those which expand revenues;

(ii) Those which expand costs;

A fundamental difference between the above two categories of investment decisions lies in the fact that cost-reduction investment decisions are subject to less uncertainty in comparison to the revenue-affecting investment decisions.

Thus, capital budgeting refers to the total process of generating, evaluating, selecting and following up on capital expenditure alternatives. The firm allocates or budgets financial resources to new investment proposals. Capital budget is a statement of expenditure on fixed assets or long-term projects and the benefits of which are likely to accrue in future.

The process of capital budgeting involves:

(a) Evaluating investment proposals;

(b) Measuring the benefits, and

(c) Selecting a project on the basis of a pre-determined criterion.

Essay # 5. Techniques of Capital Budgeting :

The prime task of the capital budgeting is to estimate the requirements of capital investment of a business. There are a number of techniques/methods of capital budgeting available.

i. Traditional Methods:

a. Payback Period.

b. Average rate of Return.

ii. Discounted Methods:

a. Net Present Value.

b. Internal Rate of Return.

c. Profitability Index.

a. Pay Back Period:

Payback period is the most widely used measure for evaluating potential investments. Payback period focuses on recovering the cost of investments. Payback period is the time required (months or years) for a company to recover its original investment in project.

There are two ways of calculating the payback period:

1. The first method can be applied when the cash inflows are uniform for each year of project’s life.

The formula for Payback Period (PP) is:

Capital budgeting is a process that businesses use to evaluate potential major projects or investments. Building a new plant or taking a large stake in an outside venture are examples of initiatives that typically require capital budgeting before they are approved or rejected by management.

As part of capital budgeting, a company might assess a prospective project's lifetime cash inflows and outflows to determine whether the potential returns it would generate meet a sufficient target benchmark. The capital budgeting process is also known as investment appraisal.

Key Takeaways

• Capital budgeting is used by companies to evaluate major projects and investments, such as new plants or equipment. 
• The process involves analyzing a project's cash inflows and outflows to determine whether the expected return meets a set benchmark.  
• The major methods of capital budgeting include discounted cash flow, payback analysis, and throughput analysis.

Investopedia / Lara Antal

Ideally, businesses could pursue any and all projects and opportunities that might enhance shareholder value and profit. However, because the amount of capital any business has available for new projects is limited, management often uses capital budgeting techniques to determine which projects will yield the best return over an applicable period.

Although there are a number of capital budgeting methods , three of the most common ones are discounted cash flow, payback analysis, and throughput analysis.

Discounted cash flow (DCF) analysis looks at the initial cash outflow needed to fund a project, the mix of cash inflows in the form of revenue , and other future outflows in the form of maintenance and other costs.

These cash flows, except for the initial outflow, are discounted back to the present date. The resulting number from the DCF analysis is the net present value (NPV) . The cash flows are discounted since present value assumes that a particular amount of money today is worth more than the same amount in the future, due to inflation.

In any project decision, there is an opportunity cost , meaning the return that the company would have received had it pursued a different project instead. In other words, the cash inflows or revenue from the project need to be enough to account for the costs, both initial and ongoing, but also to exceed any opportunity costs.

With present value , the future cash flows are discounted by the risk-free rate such as the rate on a U.S. Treasury bond , which is guaranteed by the U.S. government, making it as safe as it gets. The future cash flows are discounted by the risk-free rate (or discount rate ) because the project needs to at least earn that amount; otherwise, it wouldn't be worth pursuing.

In addition, a company might borrow money to finance a project and, as a result, must earn at least enough revenue to cover the financing costs, known as the cost of capital . Publicly traded companies might use a combination of debt—such as bonds or a bank credit facility —and equity , by issuing more shares of stock. The cost of capital is usually a weighted average of both equity and debt. The goal is to calculate the hurdle rate or the minimum amount that the project needs to earn from its cash inflows to cover the costs. To proceed with a project, the company will want to have a reasonable expectation that its rate of return will exceed the hurdle rate.

Project managers can use the DCF model to decide which of several competing projects is likely to be more profitable and worth pursuing. Projects with the highest NPV should generally rank over others. However, project managers must also consider any risks involved in pursuing one project versus another.

Payback analysis is the simplest form of capital budgeting analysis, but it's also the least accurate. It is still widely used because it's quick and can give managers a " back of the envelope " understanding of the real value of a proposed project.

Payback analysis calculates how long it will take to recoup the costs of an investment. The payback period is identified by dividing the initial investment in the project by the average yearly cash inflow that the project will generate. For example, if it costs $400,000 for the initial cash outlay, and the project generates $100,000 per year in revenue, it will take four years to recoup the investment.

Payback analysis is usually used when companies have only a limited amount of funds (or liquidity ) to invest in a project, and therefore need to know how quickly they can get back their investment. The project with the shortest payback period would likely be chosen. However, the payback method has some limitations, one of them being that it ignores the opportunity cost.

Also, payback analysis doesn't typically include any cash flows near the end of the project's life. For example, if a project that's being considered involves buying factory equipment, the cash flows or revenue generated from that equipment would be considered but not the equipment's salvage value at the conclusion of the project. As a result, payback analysis is not considered a true measure of how profitable a project is, but instead provides a rough estimate of how quickly an initial investment can be recouped.

Salvage value

Salvage value is the value of an asset, such as equipment, at the end of its useful life .

Throughput Analysis 

Throughput analysis is the most complicated method of capital budgeting analysis, but it's also the most accurate in helping managers decide which projects to pursue. Under this method, the entire company is considered as a single profit-generating system. Throughput is measured as an amount of material passing through that system.

The analysis assumes that nearly all costs are operating expenses , that a company needs to maximize the throughput of the entire system to pay for expenses, and that the way to maximize profits is to maximize the throughput passing through a bottleneck operation. A bottleneck is the resource in the system that requires the longest time in operations. This means that managers should always place a higher priority on capital budgeting projects that will increase throughput or flow passing through the bottleneck.

What Is the Primary Purpose of Capital Budgeting?

Capital budgeting's main goal is to identify projects that produce cash flows that exceed the cost of the project for a company.

What Is an Example of a Capital Budgeting Decision?

Capital budgeting decisions are often associated with choosing to undertake a new project that will expand a company's current operations. Opening a new store location, for example, would be one such decision for a fast-food chain or clothing retailer.

What Is the Difference Between Capital Budgeting and Working Capital Management?

Working capital management is a company-wide process that evaluates current projects to determine whether they are adding value to the business, while capital budgeting focuses on expanding the current operations or assets of the business.

Capital budgeting is a useful tool that companies can use to decide whether to devote capital to a particular new project or investment. There are several capital budgeting methods that managers can use, ranging from the crude but quick to the more complex and sophisticated.

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Capital Budgeting in Health Care Essay

Introduction, capital budgeting, break-even analysis, profitability, and payback process.

Capital budgeting practices are very useful in both profit-making and non-profit making organizations. This is because all organizations are faced with financial constraints at one point in their operations. The capital analysis, therefore, helps in determining the ways in which to improve on its financial stability. Health care organizations also face the same problems and therefore need the methods of capital budgeting to survive. They also require extra sources of funds to maintain their performance (Kramer, & Ellertsen, 2009)

Capital budgeting is a process used by the managers of a business or of any organization to determine whether projects which require large sums of money to set up are worth pursuing. These are projects such as the building of new plants or long-term investments. The decision is reached when the projected cash input and the output are calculated so as to know whether the returns from the project will meet the target. Capital budgeting also helps the company to know which projects when undertaken will yield the most returns for the organization (Kleinmuntz, & Kleinmuntz, 1999). The most used methods of capital budgeting are net present value (NPV), discounted cash flow (DCF), and the payback period. The health care sector faces extraordinary financial strain due to the rising costs of offering its services. A lot of competition and reimbursement limitations are being experienced. In order to maintain their performance, the health care organizations must take measures such as controlling the costs and also on long term allocation of resources (Healthcare Financial Management, 2008). They must start some facilities or investment in new technologies as a response to these challenges. Capital investment methods are also significant to the health care organizations so as to give to the ways of maintaining their levels of performance in the competitive environment.

Break-even analysis is the process by which the management accountants of organizations based on the variable and the fixed costs. Break-even point is the point at which a project’s cost of setting up equals the returns from the project. It reaches the point where the returns from the projects have covered the expenses incurred in setting up the project (Business Owners Toolkit, 2007).

Profitability is the ability of a business to make returns. It is expressed as profit margin which is the net profit after deduction of taxes divided by the sales for one year. The payback period is the time taken to break even on an investment. This is the time that the worth of a business can be determined since it is when its profitability is felt (Finance Scholar, 2008).

For proposal 1

Initial investment/outlay $15,000

Variable costs mp; $40/patient, with 500 patients per year, a total cost of $20,000.

Fixed costs $75,000/year

The total costs are $110,000.

Price charged per visit $120/patient fixed for three years

# of patients projected in 1st year 500

Increase in # of patients 500/year for fours years

In the first year, 120 * 500 patients, a total of 60,000 per year.

In the second year, 120 * 1000 patients, a total of 120,000.

The break-even point of proposal #1 is in the second year. It is the point where the returns will have covered the costs (Miller, and Ryan, 1995).

For proposal 2

Initial investment/outlay $50,000

Variable costs $500/patient for 1000 patients

Fixed costs $50,000/month

Total costs, $150,000.

Price charged per visit $950/patient fixed for three years

# of patients projected in 1st year 1,000

During the first year, $950 * 1000, equal to $950,000.

The break-even point of the project will be in the first year since it will have covered all the expenses in this first year. Anticipated cash flow for proposal #1 [Y1:-35,000] [Y2:5,000] [Y3:45,000] [Y4:85,000]. The payback point for this proposal will be at the fifth year since it will have recovered all the expenses incurred in laying up the project.

Anticipated cash flow for proposal 2, [Y1:-150,000] [Y2:75,000] [Y3:300,000] [Y4:525,000]. The payback point for this proposal is in the third year since it will have recovered all the expenses in initiating the plan. It is at this point that the profitability of the plan will be felt.

Proposal #1 will be the most profitable in the long run since it is an organization’s own project not like the other one which requires lease terms.

Analysis of the anticipated profitability of any project is very essential in deciding the form of investment to engage in. this however requires those who have proper knowledge in accounting since the decision is a long term one.

Business Owners Toolkit (2007). Payback period Analysis . Web.

Finance Scholar (2008). Example and explanation of payback rule in recovering initial investment costs . Web.

Kleinmuntz, C. E. and Kleinmuntz, D. N. (1999). A strategic approach allocating capital in healthcare organizations. Healthcare Financial Management , 53 (4), 52-57.

Kramer, A. K.& Ellertsen, R. J. (2002). Using PCs for effective case-mix based budgeting. Healthcare Financial Management , 47 (6), 52-55.

Miller, T. R. & Ryan, J. B. (1995). Analyzing cost variance in capitated contracts. Healthcare Financial Management, 49 (2), 22-23.

Using an affordability analysis to budget capital expenditures . Healthcare Financial Management, 50 (6), 70-75.

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IvyPanda. (2024, March 29). Capital Budgeting in Health Care. https://ivypanda.com/essays/capital-budgeting-in-health-care/

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IvyPanda . 2024. "Capital Budgeting in Health Care." March 29, 2024. https://ivypanda.com/essays/capital-budgeting-in-health-care/.

1. IvyPanda . "Capital Budgeting in Health Care." March 29, 2024. https://ivypanda.com/essays/capital-budgeting-in-health-care/.

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IvyPanda . "Capital Budgeting in Health Care." March 29, 2024. https://ivypanda.com/essays/capital-budgeting-in-health-care/.

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The Essence of Capital Budgeting

Introduction.

A capital budget focuses on long-term organizational investment strategy, although it can be generated yearly. The primary functions of capital budgeting are expansion and replacement, following a successful analysis of market conditions and opportunities (O’Connell, 2019). Development can occur through the entry to a new geographical area or the addition of new products and services to a company’s offerings. Both of these developmental decisions demand additional equipment. Similarly, operational facilities can deteriorate, alongside the machinery that needs updates or replacement. The financial plan tailored to meet such requirements is a future investment, and it is a capital budget prepared for this project. It majorly focuses on increasing the efficiency of nurses’ working unit by renovating caregivers’ lounge.

Costs vary depending on the number of shares that investors hold, and the hospital capacity at different periods. This project’s initial step is to justify the capital acquisition, which begins from the analysis of fixed and variable costs. Various factors dictate whether to renovate the nursing lounge.

First, managers should consider its urgency and flexibility, as well as the need’s duration (Perrier et al., 2017). This project’s case shows that the need to renovate the nurses’ lounge is urgent because managers have noted significant complaints of poor morale, low nurse performance and a poor working environment. Moreover, the nursing unit manager has noticed considerable turnover for the past three years, implying the need to renovate the lounge has lasted long enough. A positive working environment improves employee productivity and satisfaction, reducing turnover rates.

Capital Budget Preparation

Lounge renovations will promote a positive work culture because employees will feel appreciated and valued. As a result, the nurses’ attitudes towards patient care will improve. Moreover, recreation will foster nurses’ satisfaction to sustain organizational goals and strategies, as Chen (2020) states, because they will have ample relaxing space and equipment for stress relieve. Following the operation budget prepared earlier, San Jose’s hospital capital budget for renovation is scheduled for approximately one year after the maintenance starts. Initial planning and preparation involved resource assessment, budget development and the creation of acquisition timelines.

Later on, the current nurses’ lounge will be cleared to facilitate renovation. The whole schedule will run for no more than one and a half years, tabulated in figure 1. An analysis of the lounge requirements led to the assumption that caregivers require a recreational facility with the following items:

Assumptions

• The company will incur approximately $620000 to renovate the nursing lounge.
• Seventy per cent of the capital cost will be obtained from the clinic’s equity.
• The remaining amount will be sourced from a financial institution with less than ten per cent interest rates.

Cost Calculation for Budget Management

Process costing and job order costing are examples of procedures used in accounting to calculate the cost. This project will specifically utilize job order costing, which refers to the assignment and accumulation of individual expenses. It is applicable when items vary, and each has a high cost. Moreover, job order costing is appropriate when it differs from one batch to another, and it shows the processes that will be successful by some value (Perrier et al., 2017). Since the system provides a framework for calculating unit costs, it is appropriate for determining the financial budget for San Jose nurses’ lounge renovation.

After determining expenditure allocation, the company will take overhead costs, such as interior design, which cannot be directly allocated to specific renovation phases, and divide them with all process costs. The determination of the unit’s overheads is followed by calculating the value of each process. This value is achieved by aggregating all process costs and relating the figures with the projected renovation costs. If the budgeted renovation costs are lower than the overhead costs, the former is added to ensure maximum nurses’ satisfaction.

Unusual circumstances may occur during renovation, leading to a change of plans. Tus, variance analyses will be necessary to ensure budget compliance and minimal unplanned expenses. It refers to the quantitative analysis of the difference between planned and actual behaviour. Variance analysis maintains control over a business plan, and it will be useful for renovation budget at San Jose health centre because the managers have reviewed the operating costs and established a more apparent trend in expenditures (Cheng & Liu, 2019. Thus, the project’s outcome will only be the difference from projections, apart from interpreting why the variance was experienced. The unit manager will conduct variance analysis with representatives from the financial department to identify any deviations.

How Capital Acquisition Will Affect Organizational Financial Health

As mentioned earlier, nurses’ satisfaction is directly related to patients’ wellness, determined by the care quality provided. High patient dissatisfaction reduces reimbursement rates in health care organizations, as it does to other business firms (Cheng, 2020). Thus, satisfying caregivers will lead to exquisite financial returns, keeping the company on a competitive edge. San Jose Hospital will acquire huge capital to renovate nurses’ lounge, but the expenses will foster caregivers’ satisfaction. In the end, the organization will retain nurses and patients, maintaining its profitability.

Although the renovation will promote nurses’ productivity, the company’s current operating costs reveal that some aspects of patient care may be compromised in the course of capital acquisition. Akinleye et al. (2019) examined the relationship between patient care and hospital finances and found that a strained financial condition leads to unsafe and poor patient care. Although most managers present predictive validity of financial measures, uncertain circumstances, such as sudden increase in patient attendance and readmission due to recurring conditions, compromise capital budgets’ reliability.

Additionally, most economic models rely on visible indicators, such as bankruptcy, which can easily be obtained, although it does not represent overall considerations (Cheng & Liu, 2019). This project used more comprehensive measures of hospital performance, which captured the total amount of revenue. Therefore, the capital acquisition process will not present significant shortcomings to the organization.

Nursing lounge renovation will enable caregivers to enjoy ample recreational space to prevent burnout and reduce turnover in the long run. The capital budget discussed earlier will ensure a cost-effective renovation to create a friendly working environment because nurses will feel valued and appreciated. Nurses’ satisfaction will eventually motivate them to help San Jose Clinic to maintain its competitive edges and earn substantial revenue. A capital budget of close to $620000 will surface the renovation of nurses’ lounge in the hospital. The capital acquisition step will increase reimbursement rates in the clinic, following patient retention.

Akinleye, D. D., Mcnutt, L., Lazariu, V., & Mclaughlin, C. C. (2019). Correlation between hospital finances, quality, and safety of patient care. Plos One, 14 (8). Web.

Chen, H. C., Cates, T., Taylor, M., & Cates, C. (2020). Improving the US hospital reimbursement: How patient satisfaction in HCAHPS reflects lower readmission. International Journal of Health Care Quality Assurance , 33 (7/8), 334-344.

Cheng, J., & Liu, Y. (2019). Research on hospital cost management based on responsibility cost budget. Proceedings of the second International Symposium on Social Science and Management Innovation (SSMI 2019). Web.

Perrier, N., Pellerin, R., & Trudeau, R. (2017). Claim management-impact cost calculation methods in project management. Engineering Management Reviews, 6 (1), 27. Web.

O’Connell, B. (2019). What is capital budgeting? Definition and examples . Web.

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Capital Budgeting essay

Capital budgeting comprises an integral part of the effective business development because companies have to focus on the most prospective and profitable projects with the balanced risk-returns ratio. Capital budgeting is the process, which determines whether the particular project is worth pursuing. Investing too much into capital budgeting leads to the narrow development of the company with the focus on a few secure and profitable projects, while others projects may remain under-estimated and the company can fail to invest into a risky but potentially successful project. Investing too little into capital budgeting can raise the problem of the low effectiveness of company’s investments, if the company fail to determine priority projects which are the most prospective and beneficial for its further business development.

Sunk costs are costs that cannot be changed and are irrelevant to the decision making process because they are the past costs that have been already spent but currently the equipment, machinery or other items purchased are virtually useless. Opportunity costs are costs involving the alternative chosen that has brought profits to the company. In contrast to sunk costs, which brought financial losses to the company, opportunity costs bring profits. However, both opportunity and sunk costs have ceased their impact and cannot be used anymore.

Capital budgeting is associated with three types of risks, including stand-alone risk, corporate risk, and market risk. Stand-alone risk is the risk associated with a particular project and means that the company faces a high risk of the failure of completing the particular project successfully. The corporate risk implies that the entire company is at risk and its business operations are under a threat. Therefore, the company may face a risk of losing its marketing position or even run bankrupt. As for the market risk, this is the risk associated with the possible downturn or crisis within the market, as was the case of the housing market in the US in 2007-2008. Each type of risk is necessary to assess and control because the failure to identify either risk may lead to the failure of the project.

The qualitative risk focuses on the assessment of actual risks associated with a particular project or company. However, the qualitative risk is subjective because it relies on the assessment of qualitative attributes and does not involve quantitative ones. Nevertheless, this risk is essential to assess to understand prospects and risks associated with a particular project to the full extent. The qualitative risk focuses on the assessment of the particular project and related risks from the qualitative standpoint that means that the assessment involves the analysis of the qualitative information related to the project and associated risks. As a result, the company conducting the assessment of the qualitative risk can determine whether the project is worth implementing or not. For example, the introduction of a new product is accompanied by the qualitative risk assessment. The company monitors the customer behavior and conducts interviews of a group of customers to assess the qualitative risk. On the ground of their responses, the company makes conclusion concerning the risk. Obviously, such risk assessment is subjective because it is grounded on subjective responses of customers. Nevertheless, such risk assessment helps to understand better real world prospects of a particular project.

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Capital Budgeting essay

CAPITAL BUDGETING 3

CapitalBudgeting

Capitalbudgeting describes the process of determining and evaluatingpossible expenses or investments that are huge in nature. Suchexpenses or investments can include putting up a new production firmor long-term ventures. In this case, the cash flows of a project areassessed to determine whether the project is viable (Peterson &ampFabozzi, 2002). Some of the methods used in capital budgeting includethe analysis of discounted cash flow (DCF), net present value (NPV),internal rate of return (IRR), and payback period.

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Project’srisk can be incorporated into capital analysis through sensitivityanalysis, scenario analysis and Monte Carlo simulation (Peterson &ampFabozzi, 2002). Sensitivity analysis deals with determining howsensitive the NPV of a project is. If the NPV is very sensitive tothe changes that are made to the variables used, when calculating it,then that project is likely to be risky. Scenario analysis considersthe probability distribution of variables. This analysis deals withthe estimation of the expected value to conclude if the value of aproject would decrease in case of any adverse occurrence. Monte Carlosimulation involves the generation of random variables of inputs,which are used in calculating new NPVs. This process is repeatedseverally, and the expected value is calculated. The expected valuegenerated is used in the analysis since it indicates things likeinflation (Peterson &amp Fabozzi, 2002).

Yes.Discounted cash flows such as IRR and NPV should be used in capitalbudgeting since they indicate whether an investment is going to beprofitable or not (Damodaran, 2012). For example, if NPVs of twoprojects are calculated, then the project with the positive or thehighest figures should be chosen over the one with negative figuresbecause it will generate high income than the capital invested.

Damodaran,A. (2012). Investmentvaluation: Tools and techniques for determining the value of anyasset .Hoboken, New Jersey: Wiley.

Peterson,P. P., &amp Fabozzi, F. J. (2002). CapitalBudgeting: Theory and Practice .Hoboken: John Wiley &amp Sons.

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Free Essay On Capital Budgeting

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Capital budgets are instrumental in determining the merits which a business expects when investing in a project. Capital projects must have capital budget estimates to guide in decision-making based on the merits identified from the business case. When making accounting decisions, managers look at the rate of return on the investment that guides them to understand the viability of the project and its impact on the business (Arya, Glover & Radhakrishnan, 1998). The integration of capital budgets and managerial accounting is such that not all decisions made by the manager will take into account the details captured in the capital budget. The rate of return, for instance, may be acceptable to one organization while another company may look at it as absurd. Capital budgeting is fundamental because it creates avenues for accountability and responsibility on the part of the project manager and other stakeholders (Arya, Glover & Radhakrishnan, 1998). A comprehensive capital budget captures the risks and returns and provides all the investment information that the accounting managers must notice and make responsible investment decisions (Walther, 2015). The capital budget information is used by accounts managers to develop and formulate long-term strategic goals, estimate and forecast future cash flows and monitor and control expenditure in the company. The long-term profitability of the business is determined by the investment decisions made by the accounts manager based on the information in the capital budget (Walther, 2015). In conclusion, capital budgeting is instrumental in providing an investment direction for the business. The accounts manager can use the information therein to advise the business and make drastic changes that accommodate the project if its investment is to transform the operations and revenue returns of the company.

Arya, A., Glover, J., &Radhakrishnan, S. (1998). The controllability principle in responsibility accounting: Another look. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.54.8882&rep=rep1&type=pdf Walther, L. (2015). Principles of accounting (Managerial/cost tab). Retrieved from http://www.principlesofaccounting.com/#url

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Essay On Capital Budgeting

Type of paper: Essay

Topic: Value , Finance , Present , Money , Project , Investment , Internet , Return

Published: 2020/10/25

The investment decisions made on capital projects have a long-term implication of cost and benefit on any given business. This fact explains the importance of investment decisions in a business. Considering the high level of complications involved, a detailed consideration of the time value of money and cash flows of the project is necessary before deciding whether to accept or reject a project. In cases related to projects that are mutually exclusive, capital investment decision plays crucial roles. Among many processes that are used for assessing the accept and reject decisions, the following fundamental four techniques have been discussed below:

Payback Period

Profitability Index (PI) Net Present Value (NPV) Internal Rate of Return (IRR) Pay Back period is a simple and straightforward method and is based on universality of the process. The main focus of this approach is the liquidity focus that is then used for the evaluation of alternatives to investments. The interpretation of the results is based on the length of the pay -back period. If the time is larger, it means that there are higher risks involved and vice versa. While calculating the expenditure related to capital, this method only follows a short term approach. The two types of payback periods i.e. the discounted pay-back period and non-discounted pay-back period are based on the consideration and non-consideration of the time value of money. NPV and IRR methods are both used for determining whether to accept or reject a given project. In finance terms, the direct dollar contribution measure that applies to the shareholders is given by NPV. The percentage return on the investment given the original money put into the business is reflected by the IRR. The limitation of NPV is that it does not allow for the measurement of the project. The restriction of IRR is that it provides decision answers that are in contrast with the results from NPV. The net present value of a project is the amount, in rupees, the investment earns after yielding the desired rate of return in each period. Net present value= Present value of net cash flow- Total Net Initial Investment. The internal rate of return is usually the rate of return that a project earns. It is defined as the discount rate that equates the aggregate present value of the net cash inflows (CFAT) with the aggregate present value of cash outflows of a project. In other words, it is that rate that gives the project NPV of zero. Profitability index is yet another time adjusted capital budgeting technique. It is similar to NPV approach (Investopedia, 2004). The profitability index method measures the present value of returns per rupee invested while the NPV is based on the difference between the present value of future cash inflows and the present value of cash outlays. Comparing all the present methods, the payback method seems to be the simplest one and which is inapplicable for real life projects as it does not consider the time value of money. Net present value and internal rate of return are the most reliable methods (Peterson-Drake, P. 2015). In cases of non-exclusive projects, conflicts may arise in selecting the project in which investment is more suitable. At these times, there may be conflicting results from NPV and IRR for the same projects. In such cases, the result of NPV is to be preferred. The conflicting results may be a result of timing differences as well as size differences in the projects.

Investopedia,. (2004). Profitability Index Definition | Investopedia. Retrieved 1 February 2015, from http://www.investopedia.com/terms/p/profitability.asp Peterson-Drake, P. (2015). Advantage and Disadvantage of the different capital budgeting techniques (1st ed.).

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Crime Rates between Seattle, Washington and Denver, Colorado

This essay about the crime rate in Denver, Colorado, analyzes the factors influencing both violent and property crimes within the city. It highlights how Denver’s rapid population growth and urban development contribute to these issues, while also discussing the various strategies employed by the Denver Police Department to address them, including community policing and targeted prevention programs. The essay emphasizes the importance of understanding crime through comprehensive data and trends rather than isolated incidents. It concludes by underscoring the necessity of multifaceted solutions that involve cooperation between law enforcement, community leaders, and policymakers to ensure the safety and security of Denver’s residents.

How it works

Denver, the capital of Colorado, often lauded for its stunning Rocky Mountain backdrop and vibrant cultural scene, faces urban challenges typical of any major American city. Among these challenges, crime stands out as a particularly persistent issue that concerns residents and policymakers alike. Understanding the nuances of Denver’s crime rate offers insights into the broader social and economic contexts that define urban life in the United States.

The crime dynamics in Denver are shaped by various factors ranging from economic disparities to urban development and law enforcement strategies.

Like many cities that have witnessed rapid growth and gentrification, Denver has experienced shifts in its crime patterns over recent years. Data from the Denver Police Department and research bodies show fluctuations in both violent crimes — such as assaults and robberies — and property crimes, including burglaries and thefts.

Violent crime rates in Denver have seen some increase in recent years. This uptick is often linked to a complex web of factors, including economic distress, social unrest, and, in some instances, inadequate mental health resources. The rise in incidents can be partially attributed to the city’s expanding population. As more people converge in urban areas, the probability of crime often increases unless counteracted by effective community policing and preventive strategies.

Property crime, however, tells a slightly different story. Although it remains a significant concern, rates have varied with periods of increase and some of stabilization. The Denver police have implemented several measures aimed at reducing property crime, including community outreach programs and improved surveillance technologies. These initiatives have shown promise in certain neighborhoods, suggesting that targeted approaches can be effective.

Denver’s approach to handling its crime problem also includes efforts to understand and address the root causes of crime. Programs focusing on youth engagement, education, and employment are seen as long-term strategies to reduce crime rates. Moreover, the city’s police department has increasingly adopted community policing tactics, which emphasize building relationships between officers and community members to collaboratively solve local issues.

Despite these efforts, the perception of crime in Denver can sometimes differ from the statistical reality, influenced by media reporting and personal experiences. It is crucial for both residents and visitors to look at comprehensive data and trends over time rather than isolated incidents when forming opinions about safety in the city.

In conclusion, while Denver, like many growing cities, faces challenges with crime, it is actively engaged in multifaceted strategies to manage and mitigate these issues. Understanding that crime rates are influenced by a myriad of social, economic, and political factors is essential. Effective solutions will likewise need to be multidimensional, involving cooperative efforts between law enforcement, community leaders, and policymakers. As Denver continues to evolve, so too will its approaches to ensuring safety and security for all its residents.

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Crime Rates Between Seattle, Washington And Denver, Colorado. (2024, Apr 22). Retrieved from https://papersowl.com/examples/crime-rates-between-seattle-washington-and-denver-colorado/

"Crime Rates Between Seattle, Washington And Denver, Colorado." PapersOwl.com , 22 Apr 2024, https://papersowl.com/examples/crime-rates-between-seattle-washington-and-denver-colorado/

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PapersOwl.com. (2024). Crime Rates Between Seattle, Washington And Denver, Colorado . [Online]. Available at: https://papersowl.com/examples/crime-rates-between-seattle-washington-and-denver-colorado/ [Accessed: 23-Apr-2024]

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4 Tips to Complete College Applications on Time

W ith multiple components and deadlines, the college application process can be daunting for some students. Since prospective students are often juggling college applications alongside high school classes and activities, experts say it's easy to fall behind or procrastinate.

"Procrastination is a stress response, and it makes sense that some students who are anxious about the college process will avoid working on their applications in a timely fashion," Angela Warfield, principal consultant and founder of admissions consulting firm Compass Academics, wrote in an email.

"This can become a real problem if students wait too long to request transcripts, test score reports or letters of recommendation. Since the students need to rely on other people to submit these materials, they need to make sure to give those people as much time as possible to get those materials in before deadlines."

There are some exceptions where applications are accepted later, and schools that offer rolling admissions may be good last-minute options for students. But May 1 has traditionally been the decision deadline across higher education, even earning the name "College Decision Day," so students typically need to follow that timeline. If a student is applying for early decision or early action , there will be even earlier deadlines to submit application materials.

A well-thought-out plan, anchored by a few organizational tips, can keep students on track with college applications. Here are four tips that experts say students can follow to complete their college applications on time.

• Start planning early.
• Create a detailed checklist.
• Ask for recommendation letters early.
• Budget time for application essays.

Start Planning Early

Because there are multiple steps involved in applying to college, many of which require help from other people, experts say the most foolproof method to alleviate anxiety is to start early.

The Common App , which is used by more than 1,000 schools, opens Aug. 1 each year, meaning students can't officially submit applications through the platform until then. But those looking to get a head start can create an account during their junior year and get familiar with the platform, says Denard Jones, lead college counselor at Empowerly, a college admissions consulting company.

And though it may not be as fun as relaxing by the pool or hanging out with friends, students would be wise to use the the summer months ahead of senior year – when they have no academic obligations – to begin or complete college application tasks, such as completing any write-ups for the extracurricular or activities section , experts say.

Otherwise, "it makes the fall of your senior year that much more hard,” Jones says. “Because you still have to do academic work, you still have to go through the semester, and now you’re trying to pull all this information together."

Create a Detailed Checklist

Keeping track of the various application requirements and deadlines can be streamlined with a checklist. School counselors and independent college counselors can typically provide students with a checklist, and the College Board also provides a list for students and parents to use.

Universities also typically have an application checklist on their website, which may include directions or items specific to them.

If applying to multiple colleges, students and parents may also want to create a master spreadsheet or other document to keep track of deadlines and when parts of the application are complete. Setting up reminders on a digital calendar for important dates can also help, experts say.

"Dates to consider include: application deadlines, testing date/score submissions deadlines, dates for recommenders to submit letters of support and important scholarship deadlines," Warfield says.

Ask for Recommendation Letters Early

Letters of recommendation from teachers, school counselors and other sources are important to providing college admissions officers deeper context and colorful details about applicants. Like personal essays, they can help humanize applicants and give schools an idea of whether a student would succeed academically or fit in socially within their campus culture.

A strong recommendation can tip the scales in a student's favor, especially in situations where there are academic blemishes. A weak or vague letter may reflect poorly and cause an application to stand out for the wrong reasons, experts say.

Students should choose the right people to write letters, such as teachers or counselors who know them best. It's equally important to give recommendation writers enough notice so they aren't asked to craft a hastily written letter.

Richard Tench, a school counselor at St. Albans High School in West Virginia, suggests giving recommenders at least two weeks to complete the letter, but in some cases it may be wise to ask even earlier.

“That will provide them the time to say yes or no," he says, "but that also provides them the time to think about it and write a comprehensive letter."

Some teachers are pressed for time and commit to writing a limited number of recommendation letters each year. Once those spots are booked, students shouldn't be surprised if their request is denied. This could force students to pivot to a recommender who doesn't know them as well.

“The more time you give a recommender to write, the better," Jones says. "That way, hopefully it won’t be this template that’s just cut and paste and doesn’t really help the admissions offices much."

Budget Time for Application Essays

Personal statements are often the most time-consuming and stressful part of the application process, Warfield says. But this is another area where students can get a head start during their junior year or the summer before their senior year.

The Common App typically announces essay questions for the upcoming application cycle in January or February, giving students ample time to prepare for or begin writing the essays. Warfield recommends students begin working on essays in early June, ahead of their senior year, which allows more time to edit and perfect their essays with peers or trusted mentors.

Schools that require supplemental essays vary on when those prompts are announced, but Warfield says students should start on them as early as possible and "work smarter, not harder" when completing them.

"Look for similar themes and questions where your answers aren’t likely to change," such as what you want to major in or what community means to you, she says. "You can revise these essays to be school-specific, but not completely rewrite them. Don’t duplicate your efforts."

Starting on essays early can be particularly helpful for students who struggle or need additional assistance with writing the essay, she says, adding that students who procrastinate may be tempted to rely on another person or an artificial intelligence tool such as ChatGPT to write their essay. While some colleges are using AI in admissions, colleges expect the personal statement to be a student's authentic writing.

"As someone who’s evaluated student writing for 30 years, it is not that hard to spot an AI-generated college essay," Warfield says. "If students try to use AI as a shortcut, colleges use AI detectors and seasoned admissions readers to detect derivative material."

This could be anything created by AI technology, and use of such language in essays could harm an applicant's admissions chances, experts say.

Searching for a college? Get our  complete rankings  of Best Colleges.

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Earth Day: How a senator’s idea more than 50 years ago got people fighting for their planet

FILE - Climate activists hold a rally to protest the use of fossil fuels on Earth Day at Freedom Plaza, April 22, 2023, in Washington. (AP Photo/Carolyn Kaster, File)

FILE - Activists display prints replicating solar panels during a rally to mark Earth Day at Lafayette Square, Washington, April 23, 2022. (AP Photo/Gemunu Amarasinghe, File)

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Millions of people around the world will pause on Monday, at least for a moment, to mark Earth Day. It’s an annual event founded by people who hoped to stir activism to clean up and preserve a planet that is now home to some 8 billion humans and assorted trillions of other organisms.

Here are answers to some common questions about Earth Day and how it came to be:

WHY DO WE CELEBRATE EARTH DAY?

Earth Day has its roots in growing concern over pollution in the 1960s, when author Rachel Carson’s 1962 book “Silent Spring,” about the pesticide DDT and its damaging effects on the food chain, hit bestseller lists and raised awareness about nature’s delicate balance.

But it was a senator from Wisconsin, Democrat Gaylord Nelson, who had the idea that would become Earth Day. Nelson had long been concerned about the environment when a massive offshore oil spill sent millions of gallons onto the southern California coast in 1969. Nelson, after touring the spill site, had the idea of doing a national “teach-in” on the environment, similar to teach-ins being held on some college campuses at the time to oppose the war in Vietnam.

Nelson and others, including activist Denis Hayes, worked to expand the idea beyond college campuses, with events all around the country, and came up with the Earth Day name.

WHY WAS APRIL 22 CHOSEN FOR EARTH DAY?

A history of the movement by EarthDay.org, where Hayes remains board chair emeritus, says the date of the first Earth Day — April 22, 1970 — was chosen because it fell on a weekday between spring break and final exams and the aim was to attract as many students as possible.

IS EARTH DAY A REAL HOLIDAY?

It’s not a federal holiday. But many groups use the day to put together volunteer events with the environment in mind, such as cleanups of natural areas. You can see a list of events worldwide , or register your own event, at EarthDay.org.

HAS IT HAD AN IMPACT?

It has. The overwhelming public response to the first Earth Day is credited with adding pressure for the U.S. Congress to do more to address pollution, and it did, passing landmark legislation including the Clean Air Act and Clean Water Act. More broadly, it’s seen as the birth of the modern environmental movement. In later years, Earth Day expanded to become a truly global event. It now claims to have motivated action in more than 192 countries.

In 2000, Earth Day began taking aim at climate change, a problem that has grown rapidly more urgent in recent years.

WHAT’S THE THEME THIS YEAR?

This year’s Earth Day is focusing on the threat that plastics pose to our environment, with a call to end all single-use plastic and find replacements for their use so they can quickly be phased down.

The Associated Press’ climate and environmental coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org .