In this course, you have already learned about investments and expenditures. How are capital investments and expenditures different? Simply put, capital expenditures include purchases of property, buildings, building additions, equipment, software, and technology that will last more than a year. These are considered major purchases and investments for an organization. In your family budget, it would be equivalent to buying a car or a house, as opposed to a desk lamp or a filing cabinet.

Major purchases of any nature are usually not made hastily by individuals or organizations. Often, they take a substantial amount of research, planning, and consideration. These purchases are not devoid of risks. This week, you explore strategies and inherent risks involved in capital decision making.

Required Readings

Mikesell, J. L. (2018).
Fiscal administration: Analysis and applications for the public sector (10th ed.). Boston, MA: Wadsworth.

• Chapter 7, “Capital Budgeting, Time Value of Money, and Cost-Benefit Analysis: Process, Structure, and Basic Tools” (pp. 311-349)
• Chapter 15, “Debt Administration” (pp. 673-716)

Discussion: Pay-Offs and Risks of Capital Investments

The three most important considerations in capital budgeting for long-term, high-expense projects are planning, evaluation of alternatives, and financing. These considerations should be a visible part of any strategic investment plan. Planning includes carefully considering the potential pay-offs and risks of a project. The evaluation of alternative projects or programs comes about through applying appropriate decision-making techniques. Because of the long-term life and high expense of capital projects, proper financing usually necessitates effective debt management. In this Discussion, you ascertain how capital investment decisions are made in a specific public organization. Then, you recommend a major capital investment for this organization and analyze the potential pay-offs and risks associated with it.

By Day 4

Post By Day 4 a brief description of a major capital investment, e.g., property, buildings, building additions, equipment, software, or technology that will last more than a year, that you might recommend for the public organization. Discuss how the use of cost benefit analysis could be use to determine if this investement is a financially sound one for the organization. Then, analyze its potential pay-offs and risks, and explain how the organization might mitigate those risks.

Be sure to support your posting and responses with specific references to the Learning Resources.

 

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