Capital Budgeting encourages managers to accurately manage and control their capital expenditure. By providing powerful reporting and analysis, managers can take control of their budgets.
The purpose of this paper is to investigate capital budgeting decision under Galaxy Science Centre (GSC), which is non-profit organization. The need for such an analysis emerges from the case that only provides general information concerning the impact of capital budgeting decisions in the presence of strategic interactions among GSC. We are facing significant problems in different conditions, then through all given figures to make the best recommendations fro GSC.
Five issues will be told in this report. The first issue …show more content…
Revenue is generated through selling admission tickets. Since senior citizens and preschool children are free of charge, only 80% of admissions, which are 952,000 people, are charged. These 80% of admissions are responsible for the $5,700,000 operating costs. Therefore, the admission price for the first year need to be set at $5,700,000/952,000 = $5.98 or $6. Demand of admissions within $6.5 is inelastic. Thus, it is reasonable to set the admission price at $6.00.
After the first year, government will not continue funding GSC. In order to support the daily operating costs, GSC needs to find ways to raise money. Three options are available and we will discuss them one by one.
Case 1ЎXPromoting and advertising GSC in order to increase number of admission, keep seniors and preschool children free of charges.
A $200,000 increase in advertising expenditure will lead to a 10% increase in admissions. The current operating costs can support up to 1.5 million of admission. Our expected number of admissions is 1.19 million. With an expense of $520,000, it will raise the number of admissions by 26% to 1.5 million. Total operating costs will be $7,220,000 while admission income will be $7,200,000 . In this case, the operating income will not be able to cover the operating costs.
Case 2ЎXCharge senior and preschool children a discounted admission price.
Refer to the analysis, weЎ¦ve known:
„« Total admissions =