Capital Budgeting MBA
Uploaded by scotc130lm on Dec 15, 2008
Introduction
Capital budgeting within an governmental organization has evolved over the past decade. The importance of capital budgeting in today's depression has increased two-fold since the mortgage crisis was first mentioned on the television. The government have multiple roles in capital budgets. According to Davina F. Jacobs the roles are "as instruments of fiscal policy and to improve the net worth of government, and particularly in the area of economic infrastructure as vehicles for economic development" (2008, p. 3). This is important to for an organization or governmental entity to define an appropriate balance between current and capital expenditures or become a problem that suffers from overall poor management and performance while reducing the countries overall net worth.
Discuss how the debt capacity of a governmental entity is determined.
To understand how several governmental entities determine the appropriate debt capacity within their own governmental organization one must understand what is debt capacity. According Business dictionary debt capacity is "the assessment of the amount of debt an individual or firm can repay in a timely manner (from available means or resources) without jeopardizing its financial viability. (2008). For the City of Seattle, State law restricts debit limits. According Brian McCartan, RCW 39.36.020 and 35.45.200 limits "the City's total legal debt capacity under state law is over $3.0 billion, of which $2.6 billion is currently available" (1995, p.3). There are some more restriction under state law though including that only a portion of its total capacity can be in non-voted debt or what is "referred to as Limited Tax General Obligation" (McCartan, 2008, p.3). Though the city could issue about "$500 million of new additional debt" (McCarten, 1995, p.2). it would reduce the overall credit rating of the City. As with Seattle, the most important part is meeting the identified short and long term capital and financial plans with the defined goal of strategic capital planning while achieving the city's long range goals in the their Comprehensive plan. As with most cities the indicators that determine debt capacity is "population, income, and value of property (assessed value)" (McCarten, 1995, p. 5). With these figures it comes to simple math, by dividing the indicator of debt with the ability to repay the debt. According to McCarten's example, "Seattle's debt divided by Seattle's populations yields a debt per capita figure...