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.
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 to educate the general public about science and facilitate the school to hold the science program. The individual project includes organizing some road show and seminar in order to draw peopleЎ¦s attention about the importance of science. Moreover, we must make sure the research and development department have enough funds to operate. In order to act as a science resource centre for the government, the R&D department needs to do a lot of researches and these researches require a huge amount of money. There are various ways to measure performance:
1. number of admissions within a year.
2. the percentage of research paper published
3. feedback about the performance of individual project 4. Comparing budgeted expenditure to the actual expenditure in each department Factors we need to consider in selecting output measures:
Tangible Vs Intangible
We need to make sure the output is easy to measure. Some intangible results include the level of interest of public to GSC or customer satisfaction rate after visit GSC should not be used. They are so hard to measure and are always inaccurate. Tangible result is easy to obtain and analysis. For example: the number of admissions within a year. We can compare the admissions number between two years and have an idea whether performance is improving or declining. Quality Vs Quantity
We should focus on quality rather then quantity. For example, GSC did 10 papers and 9 of them were published in the science magazine. Another university did 20 papers but only 2 of them published. Therefore, the output measure we choose must have the power to reflect the quality of work done in GSC.
There are two options available to GSCЎXbuying or leasing the computer system. Leasing will need a down payment of $20,000 immediately and an equal payment of $6908 at the end of next 5 years. Option 2 requires an equal payment of $10,000 at the beginning of next 5 years. We used Present Value (PV) to analysis both cases. The Final results are shown in the following table.
Option 1 Interest rate = 11%
Year 0 1 2 3 4 5
Cash Flow 20,000 6,908.74 6,908.74 6,908.74 6,908.74 6,908.74 PV= $45,533.99...
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