1. Explain the differences between operating budgets and capital expenditure budgets. How are they used?
Operating budgets are budgets that deal mainly with the day-to-day operations of a facility. This may include wages, utilities, rent, and items purchased that have the intent of lasting less than a year (Johnston, n.d). This type budget provides the needed information regarding the cash on hand needed to operate the facility during a fiscal year. Capital expenditure budgets deal with more long term items such as equipment or property. As stated by Johnston (n.d.), it is necessary to have a capital budget for continued growth of the business. You complete this task by purchasing ...view middle of the document...
The static budge is not altered as volume changes (Averkamp, n.d.). It is considered a fixed cost regardless of the revenue that may alter the outcome. After this budget is approved, it does not change. When a static budget is workload standard it remains the same it does not change because of workload volume.
The flexible budget bends to the activity or volume. This budget is more useful than the static budget because of its flexibility, hence the name flexible budget. A flexible budget addressed difference issues such as planning, workloads, and controls and is more time consuming when used. The workload activity would be adjusted accordingly if the workload volume increased or decreased. The flexible budget has the ability to project expenses at different levels of workload activity (Baker & Baker, 2014, p.181).
3. Why is the IRR important to a finance executive?
The IRR, or internal rate of return, is the discounted cash flow for all incoming and outgoing cash for the life of an investment, i.e. equipment. It includes he profitability and time value of money into consideration (Baker & Baker, 2014, p.189).
The IRR, along with the net present value, are important pieces of the capital budget puzzle for a finance executive. Net present value is the cash needed and profited through the life of the investment.
4. If you were making decisions between capital projects for a hospital, what would you prioritize in the decision-making process, and why?
Using an example of the purchase of a new chemistry analyzer for the clinical laboratory. I would make a list of pros and cons regarding the equipment by asking the following questions:
1. How old...