NWM6 Task 2 Creating Operating and Capital Budgets
|Latest Update with Complete Solution
A. Analyze..the..Capital..and..Operating..Budgets..for..Sparkit..using..the..attached.."Operating..Budget"..and.."Capital..Budg
et"..by..doing..the..following:
1. Discuss..the..importance..for..a..financial..manager..to..understand..capital..budgets..and..how..they..me
et..the..organization’s..mission..and..goals..(suggested..length..of..3–5..sentences).
A..financial..manager..needs..a..thorough..understanding..of..capital..budgets..because..it..is..a..critical..tool..for..mak
ing..informed..long-
term..investment..decisions,..allowing..them..to..prioritize..projects..that..will..maximize..returns,..allocate..resources..ef
ficiently,..and..minimize..risks..associated..with..major..expenditures,..ultimately..contributing..to..a..company's..long-
term..growth..and..success...After..analyzing..Sparkit's..budgeting,..it..displays..some..costs..that..can..be..changed..and..
contract..renegotiating...As..the..new..business..year..approaches,..the..company..expenses..need..to..be..evaluated..and..u
pdated...Some..of..the..adjustments..needed..are..for..labor..cost,..supplier..cost,..product..cost,..and..all..other..company..
expenses...It..also..allows..the..company..to..allocate..any..extra..funding..to..other..areas..within..the..company...Leaders
hip..can..then..review..and..prioritize..which..new..projects..they..want..to..focus..on..for..that..new..year.
Capital..budgeting..involves..evaluating..investment..risks...Financial..Managers..should..know..how..to..balance..the..risk.
.and..still..be..able..to..achieve..financial..gain...Another..set..of..key..factors..to..consider..are..competitive..organizations,..
marketing..analysis,..and..ensuring..to..stay..in..compliance...Capital..budgeting..also..involves..evaluating..different..inve
stment..risks.
2. Discuss..the..importance..for..a..financial..manager..to..understand..operational..budgets..and..how..they..me
et..the..organization’s..mission..and..goals..(suggested..length..of..3–5..sentences).
The..importance..for..a..financial..manager..to..understand..the..operational..budget..is..because..by..forecasting..both..inco
me..and..expenses,..an..operating..budget..helps..organizations..anticipate..their..cash..flow..needs..throughout..the..year...T
his..foresight..is..crucial..for..maintaining..adequate..liquidity,..avoiding..cash..crunches,..and..deciding..on..the..timing..of
..major..expenses..or..investments...Financial..Managers..have..the..skillset..to..identify..areas..within..the..company..that..
may..be..below..or..above..budgeting..expenses...This..is..crucial..to..the..company's..productivity,..customer..experience,.
.and..profit...Budgeting..provides..a..clear..view..of..the..company's..expected..revenue..and..helps..managers..plan..strateg
ically..when..it..comes..to..the..company's..financial..outlook.
B. Adjust..fiscal..year..3..in..the..attached..“Capital..Budget”..to..a..maximum..of..$300,000,000,..with..consideration..of..the..
internal..rate..of..return..(IRR),..by..reducing..2-
4..capital..expenditures..in..the..“Proposed..Fiscal..Year..3..Capital..Project..Spend”..column...Attach..the..edited..spreadshee
t..to..your..submission.
1. Explain..how..the..cost..of..capital..and..IRR..influenced..your..decision..of..each..capital..expenditure..you..c
hose..to..reduce.
The..Capital..Budget..Total..Expense..Budget..was..reduced..to..$300,000,000.. . I..made..some..changes..to..the..Personal..pri
nting..devices..to..$$39,726,516,..changes..to..the..price..of..the..Tablet..computers..to..$16,442,718,..and..lastly..I..made..changes..t
o..the..HVAC..Equipment..to..$14,911,291...The..values..for..the..categories..for..these..cells,..I..chose..to..make..these..changes..b
ecause..they..had..the..lowest..(IRR)..which..was..consistent..with..the..associated..Cost..of..Capital.. . The..IRR..for..the..selected..
had..the..lowest..amount..when..reviewing..all..the..categories..and..all..had..a..consistent..%...All..other..areas..seem..to..be..above
..9%..so..I..didn't..want..to..make..any..adjustments..to..those..areas.
C. Adjust..the..third..fiscal..year..in..the..attached..“Operating..Budget”..to..a..maximum..of..$1,000,000..by..reducing..2–
4..variable..expenses..in..the..“Year..3..Proposed..Budgeted..Amount”..column...Attach..the..edited..spreadsheet..to..your..s
ubmission.
|Latest Update with Complete Solution
A. Analyze..the..Capital..and..Operating..Budgets..for..Sparkit..using..the..attached.."Operating..Budget"..and.."Capital..Budg
et"..by..doing..the..following:
1. Discuss..the..importance..for..a..financial..manager..to..understand..capital..budgets..and..how..they..me
et..the..organization’s..mission..and..goals..(suggested..length..of..3–5..sentences).
A..financial..manager..needs..a..thorough..understanding..of..capital..budgets..because..it..is..a..critical..tool..for..mak
ing..informed..long-
term..investment..decisions,..allowing..them..to..prioritize..projects..that..will..maximize..returns,..allocate..resources..ef
ficiently,..and..minimize..risks..associated..with..major..expenditures,..ultimately..contributing..to..a..company's..long-
term..growth..and..success...After..analyzing..Sparkit's..budgeting,..it..displays..some..costs..that..can..be..changed..and..
contract..renegotiating...As..the..new..business..year..approaches,..the..company..expenses..need..to..be..evaluated..and..u
pdated...Some..of..the..adjustments..needed..are..for..labor..cost,..supplier..cost,..product..cost,..and..all..other..company..
expenses...It..also..allows..the..company..to..allocate..any..extra..funding..to..other..areas..within..the..company...Leaders
hip..can..then..review..and..prioritize..which..new..projects..they..want..to..focus..on..for..that..new..year.
Capital..budgeting..involves..evaluating..investment..risks...Financial..Managers..should..know..how..to..balance..the..risk.
.and..still..be..able..to..achieve..financial..gain...Another..set..of..key..factors..to..consider..are..competitive..organizations,..
marketing..analysis,..and..ensuring..to..stay..in..compliance...Capital..budgeting..also..involves..evaluating..different..inve
stment..risks.
2. Discuss..the..importance..for..a..financial..manager..to..understand..operational..budgets..and..how..they..me
et..the..organization’s..mission..and..goals..(suggested..length..of..3–5..sentences).
The..importance..for..a..financial..manager..to..understand..the..operational..budget..is..because..by..forecasting..both..inco
me..and..expenses,..an..operating..budget..helps..organizations..anticipate..their..cash..flow..needs..throughout..the..year...T
his..foresight..is..crucial..for..maintaining..adequate..liquidity,..avoiding..cash..crunches,..and..deciding..on..the..timing..of
..major..expenses..or..investments...Financial..Managers..have..the..skillset..to..identify..areas..within..the..company..that..
may..be..below..or..above..budgeting..expenses...This..is..crucial..to..the..company's..productivity,..customer..experience,.
.and..profit...Budgeting..provides..a..clear..view..of..the..company's..expected..revenue..and..helps..managers..plan..strateg
ically..when..it..comes..to..the..company's..financial..outlook.
B. Adjust..fiscal..year..3..in..the..attached..“Capital..Budget”..to..a..maximum..of..$300,000,000,..with..consideration..of..the..
internal..rate..of..return..(IRR),..by..reducing..2-
4..capital..expenditures..in..the..“Proposed..Fiscal..Year..3..Capital..Project..Spend”..column...Attach..the..edited..spreadshee
t..to..your..submission.
1. Explain..how..the..cost..of..capital..and..IRR..influenced..your..decision..of..each..capital..expenditure..you..c
hose..to..reduce.
The..Capital..Budget..Total..Expense..Budget..was..reduced..to..$300,000,000.. . I..made..some..changes..to..the..Personal..pri
nting..devices..to..$$39,726,516,..changes..to..the..price..of..the..Tablet..computers..to..$16,442,718,..and..lastly..I..made..changes..t
o..the..HVAC..Equipment..to..$14,911,291...The..values..for..the..categories..for..these..cells,..I..chose..to..make..these..changes..b
ecause..they..had..the..lowest..(IRR)..which..was..consistent..with..the..associated..Cost..of..Capital.. . The..IRR..for..the..selected..
had..the..lowest..amount..when..reviewing..all..the..categories..and..all..had..a..consistent..%...All..other..areas..seem..to..be..above
..9%..so..I..didn't..want..to..make..any..adjustments..to..those..areas.
C. Adjust..the..third..fiscal..year..in..the..attached..“Operating..Budget”..to..a..maximum..of..$1,000,000..by..reducing..2–
4..variable..expenses..in..the..“Year..3..Proposed..Budgeted..Amount”..column...Attach..the..edited..spreadsheet..to..your..s
ubmission.
