Ted Jones, the Surgery Unit Director, is about to choose his strategy for creating a capital expenditure funding proposal for the coming year. Ted’s unit needs more room. The Surgery Unit is running at over 90% capacity. In addition, a prominent cardiology surgeon on staff at the hospital wants to create a new cardiac surgery program that would require extensive funding for more space and for new state-of-the-art equipment. The surgeon has been campaigning with the hospital board members.
Required
What should Ted decide to ask for? How should he go about crafting a strategy to justify his request, given the hospital’s new scoring system?
The budget and decision for Capital expenditure is truly critical to achieve the success of a company.First step is to necessary evaluation of plan made before making the request for it. One of 2 people must be the financial controller or any one of them must be the head of the finance department, because the evaluation process involves so many technical matters from the finance point of view and the financial controller is be able to analyze & evaluate whole budget and decision for capital expenditure properly, because tha person is aware of various techniqual matter like :
(NPV) Net Present Value method,
(IRR) Internal Rate of Return method.
(ARR) Accounting Rate of Return
(PI) Profitability Index ….etc
The other person, a divisional manager that is head of the division in which such capital expenditure is going to incurred, example: if you are going to buy machines for improving the production process, then the production manger must included in the decision process. Because he can help you for determining the or incremental cash flow cost saving technique for buying that machines. Such future cash inflows or incremental cash flow are important in evaluation part. Such person will indicate you if any risk involve in usage of that machines in different type of scenarios which might affect the future cash flows. Now to find out the cash flows of particular project, , then to use particular technique like (NPV) Net Present value to justify he investment. Such cash flows is discounted with cost of capital of project
