Hello, please assist me with responding to the below academic discussion question and statements:
Please note whether or not the arguments/statements are articulate and logical & if the facts are correct in 80 – 100 words.
Question:Capital budgeting can be used in the for-profit and not-for-profit sectors. How could you use capital budgeting in your personal finances?
Statement 1: Jenn- .3 capital budgeting
Capital budgeting is the process for businesses or individuals looking to invest to determine potential expenses in an investment. If I were looking at this on a personal financial level, I would compare it to the same situation as our text and investing in a house that needed updating. I would look at the cost of the house and then figure how much would need to be put into it with electricians, plumbers, and carpenters to figure out how much money would be needed to fix issues. I would have a projected finish date and a time frame to have the house sold for a profit. If the houses in the area were selling for a significantly higher amount than the purchase price and amount it cost to fix issues then it would be a good investment. You are just taking a chance hoping that the property sells for a good price in the time frame needed to make a profit.
For non-profit or government corporations, capital budgeting can be useful. “The three components—increased revenue, decreased cost, and time—hold true whether the organization operates as a for-profit or a nonprofit” (Rothschild, 2012). As long as the non-profit organization or government is establishing economic value then they are producing what is needed. Any profit is put back into the organization for further use. The more profit the better for these circumstances.
Statement 2: Natasha
Capital budgeting can be applied to my personal finances when it comes time for me to buy a house, knowing the present value of a house and determining how long it will take me to pay off the investment and in turn sell it for x number of dollars in y amount of years is all a part of capital budgeting. It can become further detailed as to whether or not before selling it would pay off to renovate a bathroom or kitchen or maybe finish the basement.
The capital budgeting criteria as mentioned in the textbook is directly applicable to non-profit organizations and government agencies. Albeit non-profits and government agencies are not in business to make money for shareholders they are still a form of business. If sound investments are not made into what it is they do which is essentially protecting and providing services and at times free goods to the public they can end up just like a for profit business, bankrupt and out of business. Prime example being the city of Detroit filing for bankruptcy. “Detroit filed for bankruptcy Thursday, becoming the nation’s largest public sector bankruptcy. The move could slash pension benefits to city workers and retirees, and leave bond holders with only pennies on the dollar” Isidore 2013, para. 1. The results of a lack of effective capital budgeting have left the city of Detroit with hour long response times for the local police, street lights shut off, and the city becoming increasingly dilapidated.