SPEA- V186 Final Exam – Questions With Precise
Solutions
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Terms in this set (106)
What a dollar is worth today is not Opportunity Costs
what a dollar is worth next year →
why?
what does discounting allow us to - allows us to see Present Value from Future Values
do? - allows us to use the concept of Time Value of
Money (Opportunity Costs) when making decisions
Opportunity Costs Infrastructure: High Price. Long Life
- forgone investment income plus loss of capital
- $10 Million, 20 years. Invested at 3.5% equals 19.9
million
,Capital Budgeting, Public Infrastructure: very important since it helps in the
Infrastructure, & Project Evaluation production and distribution of private economic
production
- Symbiotic relationship between Gov't and Private
Sector: No roads, airways, etc.
- Most Infrastructure builds yield private goods and
services, resulting in benefits to society and taxation
revenue
- State/Local: Capital budgets are separate from
service expenditures in an operating budget
- Greater efficiency in budgeting when Tax Base is
not targeted for funding
Golden Rule of Infrastructure Finance match current revenue to spending on current
services, but borrow to support the capital
spending and thereby maintain the net worth of the
public sector
(AKA: Finance (Borrow) to support Capital
spending, maintaining the tax base of gov't entity)
Why have a Capital Budget? To select individual projects for funding while
keeping expenditures within a total resource
constraint. We do this with discounting future
values.:
1. Separate consideration
2. stabilize tax rates when individual capital projects
are large relative to the tax base of the host
government. 3. Special reviews of capital budgeting
are appropriate because capital projects are
permanent, mistakes will be around for many years.
4. valuable tools for managing limited fiscal
resources, especially in light of the special care
required to plan activities that necessitate long term
drains on those resources.
Characteristics of capital projects and 1. Long Life
why we must get it right if we build 2. Large Price Tag
and finance it 3. Non-Recurring
, Capital Implementation Plan 1) consequences of facility failure,
2) recurring benefits from facility,
3) cost and financial impact of the project,
4) citizenry attitude.
- identifies capital expenditure projects appropriate
for the next 6 years.
- debt ratings & issues very important
Problem w/ Capital Budgets 1) Requires continuous cycle of reappraisal and
reevaluation of project proposals
2) Questions may arise about which projects or
programs belong in the capital budget.
3) Availability of funds can distort choices and
priority ranks.
4) Capital budgeting can unduly and
uneconomically favor the use of debt finance.
5) The final problem is one of who establishes the
priorities. What items get into the budget. Cost
benefit can help, but can come down to elected
officials again.
Discounting A process of converting a stream of returns or costs
incurred over time to a single present value. The
present value accounts for both the absolute size
and the timing of the impacts of a proposed actions.
Compounding - opposite of discounting
- tool for understanding time value of money
(opportunity cost)
Solutions
Add to calendar
Play your way to mastery with fun games
Match Blocks Charms NEW
Terms in this set (106)
What a dollar is worth today is not Opportunity Costs
what a dollar is worth next year →
why?
what does discounting allow us to - allows us to see Present Value from Future Values
do? - allows us to use the concept of Time Value of
Money (Opportunity Costs) when making decisions
Opportunity Costs Infrastructure: High Price. Long Life
- forgone investment income plus loss of capital
- $10 Million, 20 years. Invested at 3.5% equals 19.9
million
,Capital Budgeting, Public Infrastructure: very important since it helps in the
Infrastructure, & Project Evaluation production and distribution of private economic
production
- Symbiotic relationship between Gov't and Private
Sector: No roads, airways, etc.
- Most Infrastructure builds yield private goods and
services, resulting in benefits to society and taxation
revenue
- State/Local: Capital budgets are separate from
service expenditures in an operating budget
- Greater efficiency in budgeting when Tax Base is
not targeted for funding
Golden Rule of Infrastructure Finance match current revenue to spending on current
services, but borrow to support the capital
spending and thereby maintain the net worth of the
public sector
(AKA: Finance (Borrow) to support Capital
spending, maintaining the tax base of gov't entity)
Why have a Capital Budget? To select individual projects for funding while
keeping expenditures within a total resource
constraint. We do this with discounting future
values.:
1. Separate consideration
2. stabilize tax rates when individual capital projects
are large relative to the tax base of the host
government. 3. Special reviews of capital budgeting
are appropriate because capital projects are
permanent, mistakes will be around for many years.
4. valuable tools for managing limited fiscal
resources, especially in light of the special care
required to plan activities that necessitate long term
drains on those resources.
Characteristics of capital projects and 1. Long Life
why we must get it right if we build 2. Large Price Tag
and finance it 3. Non-Recurring
, Capital Implementation Plan 1) consequences of facility failure,
2) recurring benefits from facility,
3) cost and financial impact of the project,
4) citizenry attitude.
- identifies capital expenditure projects appropriate
for the next 6 years.
- debt ratings & issues very important
Problem w/ Capital Budgets 1) Requires continuous cycle of reappraisal and
reevaluation of project proposals
2) Questions may arise about which projects or
programs belong in the capital budget.
3) Availability of funds can distort choices and
priority ranks.
4) Capital budgeting can unduly and
uneconomically favor the use of debt finance.
5) The final problem is one of who establishes the
priorities. What items get into the budget. Cost
benefit can help, but can come down to elected
officials again.
Discounting A process of converting a stream of returns or costs
incurred over time to a single present value. The
present value accounts for both the absolute size
and the timing of the impacts of a proposed actions.
Compounding - opposite of discounting
- tool for understanding time value of money
(opportunity cost)
