How does the fact that the project is financed by a reimbursable grant affect the choice?

BOOKCASE: A CAPITAL BUDGETING DECISION FOR A SMALL PUBLIC LIBRARY AND TECHNOLOGY CENTER "One, but not both." reverberated through the mind of the Mt. Ashton, President of the Piedmont Township Friends of the Library. He asked Ms Taylor, the treasurer, to repeat the status to ensure that he had beard correctly. She repeated "We did receive the reimbursement grant Unfortunately, the amount was less than we hoped. The grant for the library will conter either the computer project or the book collection project, but not both. Thus, we have to decide which project to finance. I wish we could fund both, but we can't." Mr. Ashton inquired. "Is it poble to purchase some of the books and some of the computers? This would seem to solve the problem and best serve the community's seeds Me Taylor explained that the costs were based on quantity discounts "To reduce the quantity of books or mumber of computers would significantly increase the cost of the projects. So regrettably, that isn't an option "What about funds on hand? Do we have enough to supplement the grant and cover both projects?" Ms. Taylor answered "No, we do not" "We have yet to have our yearly fundraiset, fut based on the expectation from the budget, even with the fundraiser we will not come close to funding both projects. Additionally, the decision is important because it will take yours to generate the additional funding for the project not choset. (See Figure 1 for selected finals) Figure 1: Selected Financial Information Piedmont Township Library & Tech Center Annual Income (P&L) Statement General Operating Budget (Checking) 2009 2010 te date Renne Badger Actual Midgar Actual Beginning Balance 50.00 S0.00 $32737 $32737 Fundraising Donations $1,000.00 $768.00 S1.300.00 5266.72 Grants S0.00 S0.00 $10,000.00 50.00 Interest 50.00 SO 37 $0.00 $0.46 Loan Proceeds $0.00 $0.00 $10.000 50.00 Total Revenue $1,000.00 $768.37 $21.827.80 5595 Expenses Budger Actual Badger Actual General Meetings 50.00 50.00 $0.00 50.00 Insurance SIOL.00 S101.00 SI0100 S101.00 PO Box $40.00 $40.00 500.00 Fundraising $300,00 $300.00 S30600 $100.00 Loan Repayment 50.00 $0.00 $10.000 $0.00 Total Expenses $441.00 S441.00 $44100 S44100 Net Annual Income 5599.00 $327.37 $11.436 37 5153.55 **Grant awarded, but money must be spent before and released 500.00 Thinking out loud. Mr. Ashton stated "We're helping the library. Bused on that we should ondet the books. Statistics show that two-thirds of kueness children living in poverty have no books at home, and the number of families living in party on the last look at the statistics in our community. Without access to books, it will only two The book collection must be updated. They will just have to refurbish the four older computers currently on hand." That is true,"Ms. Taylor, pointed out. "However, it is also a technology center. As such, it needs more than four refurbished computers. Additional updated computers say. With access to computers, residents can increase computer skills, take on-line classes, fill out job application and increase literacy COMMUNITY INFORMATION Piedmont Township is community comprised of districts with a population of 1.574 residents of that number. 76 62% are classified as belonging to a minority gosp. According to 2 the most recent comuus data, 30% of the population is below the poverty time and 33.25 is under the age of 18 FRIENDS OF THE LIBRARY The Friends of the Piedimont Township Public Library & Technology Center is a non-profit organization with a mission to assist the public library in reaching is full potential by fundraising, promoting volunteerism, community involvement and improving the quality of the library through a balance between technology and education. As such, the members volunteer hold fundraisers apply for grants de While the does not make decisions for the library, it does donate to specific projects and commendations to the library board PIEDMONT TOWNSHIP PUBLIC LIBRARY & TECHNOLOGY CENTER The facility is named the Piedmont Township Public Library & Technology Center. The mission is to inform, educate, and culturally enrich the lives of all citizens regardless of age, care, and conomic background. The Library collectors and provides access to with information and technology resources to meet the educational Informational recreational and cultural needs of the community. The library is committed to the highest standards of ethics and public service, and will strive for the maximum of effectiveness and my in Library operations. The Library is dedicated to meeting the standards for a small public library mandated by state regulation The purpose of the community based technology center is to help bridge the knowledge gap enabling access to educational informational, cultural and recreational resources. All citizens from pre-kindergarten to adult leamers will have access to a teaching and learning center to acquire computer skills, and to participate in programs, workshops and training sessions Additionally, this center is the only location in a 35 mile radius providing wireless Internet access to the local residents at no charge THE TWO PROJECTS 1. The computer project The library board determined that the library would need to new computers in the technology lab to support the community. An additional for refuhishod vystems currently available would be placed in the children's area. The refurbished computers will be placed in the lab if now computers are obtained. All systems require Internet access and printing capabilities The The four old computer systems are to be refurbished at a cost of $200 total (S50 each) wireless internet access is provided through the town for $1.20 per month and is available even if the new computers are not acquired. However, there is a difference of $20 (5140 $120) per month if the new computers are installed The cost of the new computers is 59,015.14 Another $200 is needed for installation. The expected shelf-life of the systems is four years and the library we stright line depreciation However, an upgrade cost of 51,015.00 will increase the shelf-life to seven years local. If the upgrade is chosen, it will be added to the initial cost Straight-line depreciation will be used Details listed in Figure 2) Figure 2: Project Data for the Computer Project Cost to refurbish computers Cost of wireless Internet Access Cost of new computers Installation costs Depreciation on computers without parade Unradie Costa Depreciation on computers with superade $200 total (550 each $140 with new computers $120 without cours 59 015.14 5200 Foot years, strast lie to SO 51015 added to comper costs Seven years ago 0 2. The book collection project Volunteers weeded the current collection and the books that would be a part of the new collection. Approximately 200 books from the current collection were marked to be moved to the new collection. The books that were set in the new collection, but could be sabagod were sold in a community book drive. The book drive provided an additional $238 that could be used toward the projects Based on the speedsheet from the state that lists the required youth and young adult collection for a small library, Piedmont Township identified almost 400 books that neod to be purchased und added to the collection. The quote recerved to update the collection totaled 55 500 An additional S 500 is needed to acquire hardware to convert the collection to an tomated catalog system. The books are not depreciated and have an expected life of twenty years Details lined in Figure 3) Figure 3: Project Data for the Book Project 20 years Book life Cost of new book collection Cost of automated catalog system $5.500 $1,500 FINANCING and TAXES The Friends of the Library obtained a grant for $10,000 to pay for a community project. The grant is a reimbursement grant meaning, once receipts are received, the grantor will reimburse purchases up to $10,000. Since the organisation does not have the funds on hund, a local credit union agreed to provide the funds via a loan that will be repaid using the grant. The loan has an interest rate of 4.5% and taxes are assessed 3 (Details Tinted in Figure 4) Figure 4: Financing and Tax Information Value of Reimbursement Community Project $10,000 Grant Loan $10,000 at 455 Taxes, WACC 35%, 4.5 Conclusion Mr. Astiton stared at the information given to him by Ms Taylor Questions whirled in his head. Which project (the computer purchases without the upgrades, the computer purchases with the upgrades or the book purchases) was best? How should be compare the projects since soewere revenue generating alternatives? Which option maximes the social welfare of the community which, as stated in the mission is inform, ducate, and culturally enrich the lives of all citizens regardless of age, culture, and economic background" from Reading 13 Fundamental Retrieved December 20 2012 http//www.boleracy-sweet Census Data. Retrieved December 20, 2012 from ww.data.com BOOKCASE: A CAPITAL BUDGETING DECISION FOR A SMALL PUBLIC LIBRARY AND TECHNOLOGY CENTER "One, but not both." reverberated through the mind of the Mt. Ashton, President of the Piedmont Township Friends of the Library. He asked Ms Taylor, the treasurer, to repeat the status to ensure that he had beard correctly. She repeated "We did receive the reimbursement grant Unfortunately, the amount was less than we hoped. The grant for the library will conter either the computer project or the book collection project, but not both. Thus, we have to decide which project to finance. I wish we could fund both, but we can't." Mr. Ashton inquired. "Is it poble to purchase some of the books and some of the computers? This would seem to solve the problem and best serve the community's seeds Me Taylor explained that the costs were based on quantity discounts "To reduce the quantity of books or mumber of computers would significantly increase the cost of the projects. So regrettably, that isn't an option "What about funds on hand? Do we have enough to supplement the grant and cover both projects?" Ms. Taylor answered "No, we do not" "We have yet to have our yearly fundraiset, fut based on the expectation from the budget, even with the fundraiser we will not come close to funding both projects. Additionally, the decision is important because it will take yours to generate the additional funding for the project not choset. (See Figure 1 for selected finals) Figure 1: Selected Financial Information Piedmont Township Library & Tech Center Annual Income (P&L) Statement General Operating Budget (Checking) 2009 2010 te date Renne Badger Actual Midgar Actual Beginning Balance 50.00 S0.00 $32737 $32737 Fundraising Donations $1,000.00 $768.00 S1.300.00 5266.72 Grants S0.00 S0.00 $10,000.00 50.00 Interest 50.00 SO 37 $0.00 $0.46 Loan Proceeds $0.00 $0.00 $10.000 50.00 Total Revenue $1,000.00 $768.37 $21.827.80 5595 Expenses Budger Actual Badger Actual General Meetings 50.00 50.00 $0.00 50.00 Insurance SIOL.00 S101.00 SI0100 S101.00 PO Box $40.00 $40.00 500.00 Fundraising $300,00 $300.00 S30600 $100.00 Loan Repayment 50.00 $0.00 $10.000 $0.00 Total Expenses $441.00 S441.00 $44100 S44100 Net Annual Income 5599.00 $327.37 $11.436 37 5153.55 **Grant awarded, but money must be spent before and released 500.00 Thinking out loud. Mr. Ashton stated "We're helping the library. Bused on that we should ondet the books. Statistics show that two-thirds of kueness children living in poverty have no books at home, and the number of families living in party on the last look at the statistics in our community. Without access to books, it will only two The book collection must be updated. They will just have to refurbish the four older computers currently on hand." That is true,"Ms. Taylor, pointed out. "However, it is also a technology center. As such, it needs more than four refurbished computers. Additional updated computers say. With access to computers, residents can increase computer skills, take on-line classes, fill out job application and increase literacy COMMUNITY INFORMATION Piedmont Township is community comprised of districts with a population of 1.574 residents of that number. 76 62% are classified as belonging to a minority gosp. According to 2 the most recent comuus data, 30% of the population is below the poverty time and 33.25 is under the age of 18 FRIENDS OF THE LIBRARY The Friends of the Piedimont Township Public Library & Technology Center is a non-profit organization with a mission to assist the public library in reaching is full potential by fundraising, promoting volunteerism, community involvement and improving the quality of the library through a balance between technology and education. As such, the members volunteer hold fundraisers apply for grants de While the does not make decisions for the library, it does donate to specific projects and commendations to the library board PIEDMONT TOWNSHIP PUBLIC LIBRARY & TECHNOLOGY CENTER The facility is named the Piedmont Township Public Library & Technology Center. The mission is to inform, educate, and culturally enrich the lives of all citizens regardless of age, care, and conomic background. The Library collectors and provides access to with information and technology resources to meet the educational Informational recreational and cultural needs of the community. The library is committed to the highest standards of ethics and public service, and will strive for the maximum of effectiveness and my in Library operations. The Library is dedicated to meeting the standards for a small public library mandated by state regulation The purpose of the community based technology center is to help bridge the knowledge gap enabling access to educational informational, cultural and recreational resources. All citizens from pre-kindergarten to adult leamers will have access to a teaching and learning center to acquire computer skills, and to participate in programs, workshops and training sessions Additionally, this center is the only location in a 35 mile radius providing wireless Internet access to the local residents at no charge THE TWO PROJECTS 1. The computer project The library board determined that the library would need to new computers in the technology lab to support the community. An additional for refuhishod vystems currently available would be placed in the children's area. The refurbished computers will be placed in the lab if now computers are obtained. All systems require Internet access and printing capabilities The The four old computer systems are to be refurbished at a cost of $200 total (S50 each) wireless internet access is provided through the town for $1.20 per month and is available even if the new computers are not acquired. However, there is a difference of $20 (5140 $120) per month if the new computers are installed The cost of the new computers is 59,015.14 Another $200 is needed for installation. The expected shelf-life of the systems is four years and the library we stright line depreciation However, an upgrade cost of 51,015.00 will increase the shelf-life to seven years local. If the upgrade is chosen, it will be added to the initial cost Straight-line depreciation will be used Details listed in Figure 2) Figure 2: Project Data for the Computer Project Cost to refurbish computers Cost of wireless Internet Access Cost of new computers Installation costs Depreciation on computers without parade Unradie Costa Depreciation on computers with superade $200 total (550 each $140 with new computers $120 without cours 59 015.14 5200 Foot years, strast lie to SO 51015 added to comper costs Seven years ago 0 2. The book collection project Volunteers weeded the current collection and the books that would be a part of the new collection. Approximately 200 books from the current collection were marked to be moved to the new collection. The books that were set in the new collection, but could be sabagod were sold in a community book drive. The book drive provided an additional $238 that could be used toward the projects Based on the speedsheet from the state that lists the required youth and young adult collection for a small library, Piedmont Township identified almost 400 books that neod to be purchased und added to the collection. The quote recerved to update the collection totaled 55 500 An additional S 500 is needed to acquire hardware to convert the collection to an tomated catalog system. The books are not depreciated and have an expected life of twenty years Details lined in Figure 3) Figure 3: Project Data for the Book Project 20 years Book life Cost of new book collection Cost of automated catalog system $5.500 $1,500 FINANCING and TAXES The Friends of the Library obtained a grant for $10,000 to pay for a community project. The grant is a reimbursement grant meaning, once receipts are received, the grantor will reimburse purchases up to $10,000. Since the organisation does not have the funds on hund, a local credit union agreed to provide the funds via a loan that will be repaid using the grant. The loan has an interest rate of 4.5% and taxes are assessed 3 (Details Tinted in Figure 4) Figure 4: Financing and Tax Information Value of Reimbursement Community Project $10,000 Grant Loan $10,000 at 455 Taxes, WACC 35%, 4.5 Conclusion Mr. Astiton stared at the information given to him by Ms Taylor Questions whirled in his head. Which project (the computer purchases without the upgrades, the computer purchases with the upgrades or the book purchases) was best? How should be compare the projects since soewere revenue generating alternatives? Which option maximes the social welfare of the community which, as stated in the mission is inform, ducate, and culturally enrich the lives of all citizens regardless of age, culture, and economic background" from Reading 13 Fundamental Retrieved December 20 2012 http//www.boleracy-sweet Census Data. Retrieved December 20, 2012 from ww.data.com