Capital budgeting processes and strategic financial planning

River County's Capital Budget

River County Capital Budget

Here at River County we have put together a capital budget because we are planning to make several principal achievements for the next year of business in 2012 because we believe that after further evaluation of the investments we have made in 2010 has helped us determine which items are beneficial to the company and the consumer. What we must ask ourselves at River County is "If we continue to purchase these types of items in the future, will the profit to our corporation be larger that the expenditure of the asset?" We realize that these items do vary; however, we are able to see the positives and negatives of these smaller and larger units by not only calculating the different costs and expected years of the product or asset, but to look at the company's averages, as well.

In reference to the excel spreadsheet that our managers have put together based on last year's cost of expenses, we have looked at two possible assets that are bought to assist our business in the distribution of goods and services as well as construction and maintenance at our facility which was the garbage truck and bull dozer. We also have two possible assets that we made a decision to purchase that we bought that are a couple of goods that we currently provide inside our store that was based on sales from last year which are the lawn mowers and activity centers that we advertised and put on the market. As you can see by purchasing the garbage truck and bull dozer, the advantage of these two pricey investments are expected to last at least 10 and 8 years which is a lot more than some of our smaller items that we carry in the store. Even though these two items are a major investment and should be considered carefully, the annual percentage at which these two decline are only at a rate of 20 and 25% which is average according to the calculations. Even after 10 years of owning and operating the garbage truck, the end value of the expense is still $30,000 and can be sold close to that amount when we look at commercial blue book values that are standard for all vehicles that are classified as a viable truck in production. The value of the bull dozer at the end of eight years is $41,250, therefore, if we feel it is important to trade-in these commercial automobiles even in one year or eight years we are eligible for the full value amount in which most dealers will honor to keep in good with companies like ours.

The unit costs of the lawn mower and activity center is a huge benefit for the accounting department here at River County because the unit cost for the lawn mower is only $150 compared to some of the other expenses that are more than the effort to locate and find a company who markets affordable lawn mowers for companies to sell. Furthermore, the activity center is expected to live around 40 years, and that is what customers like is reliable businesses like ours that produce reliable products and the unit cost is only $80. The value of these products after the first year is still very high considering what can happen and the wear and tear that is put on these products that are still honored by buyers in other businesses who have these two items for sale. These two products was only a very small portion of what we spent on expenses coming to $3,800 in costs, which is what our company can easily bring in on one day where sales are average and we have a normal functioning day at our store.