Looking at River County plan for several capital acquisitions for the coming year which include the purchase of two new garbage trucks at $150,000 each, one new bulldozer at $240,000, three new riding lawn mowers at $16,000 each, and construction of an activity center in the part for $650,000. The expected lifetime of the various capital items is 10 years for the garbage trucks, 8 years for the bulldozer, 5 years for the lawn mowers, and 40 years for the activity center. Due to the current credit rating of River County, River County was approved for a 6% interest rate on all vehicles and lawn mowers, and a 3% interest on the activity center. The total cost to finance both garbage trucks for one year is $20,380.19 and the total cost is $203,801.90 for 10 years. The yearly cost to finance the bulldozer is $38,648.63 and the total cost is $309,189.04 for 8 years.
The total cost of financing all three lawn mowers for a year is $11,395.03 and the total cost for 5 years is $56,975.15. The yearly cost to finance the activity center is $28,120.55 and the total cost is $1,124,822.22 for 40 years. The total cost for the capital budget from year 1 to year 5 will be $126,664.95. The total budget cost from year 6 to year 8 will $115,269.92 and from year 9 to 10 $76,621.29. From year 10 unto year 40, the budget would be $28,120.55 for the activity center. However, River County would pay off the lawn movers in 5 years, bulldozer in 8 years, and garbage trucks in 10 years the issue of depreciation stills needs to be addressed.
The current value of the equipment would need to be appraised to determine if it is still operational according to River County standards, or do the equipment need to be replaced. If River County decides to replace the equipment then the revenue from the savage would be used to re-invest in to new equipment and the capital budget would be updated. With the current River County budget the tax revenues received from the county would be more than sufficient, but if there is a budget short fall, River County could issue 5 year municipal bonds to cover the cost.
Finkler, S.A. (2010). Financial management for public, health, and not-for-profit organizations (3rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall
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