Budgeting Exercise $10$

Evaluating Capital Expenditure Proposals

Cygnet Tennis Club

Your Task

In this exercise, your task is to work out the costs and benefits of two competing business capital expenditure proposals and determine which proposal would lead to better business performance. The term capital expenditure means that the expenditure goes on assets and will have a lasting value on producing income for the business.

This budgeting exercise will involve using online loan repayment calculators to calculate the required monthly$/$yearly loan repayments that would be necessary for a certain level of borrowing. There are many such loan repayment calculators available on the Internet. You might try the loan repayment calculator from the St$.$George bank.

To use a loan repayment calculator you will need to enter:

The amount to be borrowed $($the Principal$)$

The interest rate

The term of the loan $($the number of months or years in duration$)$

The payment frequency, usually fortnightly or monthly

The task of working out which proposal is best has been made easier for you as a template is provided. The template will show you one way to set out the problem so that it is easy to read and understand.

Your Scenario

A tennis centre in southern Tasmania has four grass courts. The management committee is considering two proposals for improving facilities. Both proposals will have some benefit on the long term revenue of the club.

Proposal A

The four grass courts will be resurfaced as hard courts. This is estimated to increase court usage by $800$ court