Budget Project Part F.docx

Budget Project Part F.docx - COMMUNITY GENERAL HOSPITAL...

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COMMUNITY GENERAL HOSPITAL 2018 It is estimated by management that the amount of money to be spent on capital equipment in 2018 will be $4,550,000. 1. How did the hospital management set the allotted dollars to be spent on capital equipment in this budget year at $4,550,000? The hospital management set the allotted dollars to be spent on capital equipment at $4,550,000 by coming up with a capital budget. This includes the long-term assets and projects that are going to be taken on in 2018. Using effective capital budgeting procedures, the management team analyzed the cost of these projects as well as the revenue that they will provide, as well as any other financial cash flow including possible contributions or grants. From this, they evaluated and determined the amount of money to be spend on capital equipment which is the capital budget. 2. What process would be followed and completed in selecting the items to be purchased in the 2018 capital budget? The management used capital budgeting, which is the process of analyzing and choosing new long-term assets. Using capital budget decisions to select these assets, they came up with the list of investments chosen which constitutes the business’s capital budget. a. What Analysis might be used and how would this work? Financial analysis is the process of evaluating businesses, projects, budgets and other entities to determine if they are profitable enough to invest in. This involves estimating cash flows, assessing risks, estimating opportunity costs and assessing financial impact. Estimating the cash flow of a project is necessary and one of the most challenging parts of capital budgeting. This process involves considering net working capital, depreciation expenses, inflation effects, opportunity costs, sunk costs, and initial costs including installation, shipping and set-up. Other forms of analysis that might be used are cash flow analysis, replacement analysis, return on investment analysis, net present value, and internal rate of return. b. What discussions would management utilize to make specific equipment purchase decisions?
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