Capital Budget Analyze the following scenario: River County is planning several

Question

Capital Budget

Analyze the following scenario: River County is planning several capital acquisitions for the coming year. These include the purchase of two new garbage trucks at $150,000 each, one new bulldozer at $240,000, three new riding lawn mowers at $16,000 each, and construction of an activity center in the part for $650,000. The expected lifetime of the various capital items is 10 years for the garbage trucks, 8 years for the bulldozer, 5 years for the lawn mowers, and 40 years for the activity center. Prepare a capital budget for the items to be acquired, showing their estimated lifetimes, and their per unit and total costs.

Clearly label the calculations for the required components of the capital budget using Excel. Use formulas to show the interrelationships and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number. Explain your budget to the county council.

Explanation / Answer

Cost of Asset $150,000 240,000 16,000 650,000 Quantity 2 1 3 1 Total cost $300,000 240000 48000 650000 Total capital expenditure $1,238,000 Discount rate assumed 10% Year 1 2 3 4 5 6 7 8 9 10 11- infinity Infinity Expected revenue 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 150,000 Cost incurred ($1,238,000) -5000 -5000 -5000 -5000 -5000 -5000 -5000 -5000 -5000 -5000 -5000 Net cash flows ($1,238,000) 195,000 195,000 195,000 195,000 195,000 195,000 195,000 195,000 195,000 195,000 145,000 Present value ($1,238,000) 177272.727 161157 146506.4 133187.6 121079.7 110072.4 100065.8 90968.94 82699.04 75180.94 1,450,000 NPV = $1,410,191

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