Short Essays
Q1
Applying user charges to fire protection is
only applicable in a different design of the system. A flat monthly fee offends
the need for equity so that some people may be paying the fee without actually
utilizing the service. In addition, a flat monthly fee fails to meet the two
out of the three prerequisites for the effectiveness of user charges. These are
voluntarism and chargeability. The only advantage that this flat monthly fee
can generate would be the generation of additional revenue. Perhaps the benefit
of netting additional revenue can still be derived by designing the fee
differently.
Q2
a.
Line
item budgets.
b.
Performance
budgets.
c.
Program
budgets.
Q3
a).
i.
An
expenditure that produces benefits in periods beyond the current financial
year.
ii.
The
expenditure is nonrecurring.
iii.
The
expenditure relates to services that have a long life.
iv.
Expenditure
normally involves large price tags.
b).
i.
Pay as
you go-This is where the money used to finance capital expenditures comes from
current revenues without any form of borrowing. A reserve fund may be created
into which money is set aside until the required amount is obtained. It is more
appropriate for low cost repair and purchase of equipment.
ii.
Pay as
you use-This approach to capital financing relies on long term debt. Most
capital expenditures rely on this approach.
iii.
Tax
rate stabilization-It is one of the reasons why capital budgeting and recurrent
budgets are often done separately. This distinction makes it possible to spread
the tax effect of huge capital expenditures over a longer period, thereby,
ensuring that tax rates remain stable over that period.
iv.
Intergenerational
equity-Simply refers to apportioning benefits and responsibility as between the
current and future generations in a fair manner. Thus, it is inequitable for
the current generation to pass use long term debt financing of recurrent
expenditures to be repaid by the future generations.
Problems
Q1
First Quarter Apportionment corresponds to
the cumulative figure as at March which is $
1,750,000.
Second Quarter Apportionment
Where C2 =Second Quarter Apportionment
CJune=Cumulative Figure at June
CMar=Cumulative Figure at March
Q2=$4,950,000-$1,750,000
=$3,200,000
Third
Quarter Apportionment
Where
Q3=Third Quarter Apportionment
CSeptember=Cumulative figure at September
CJune=Cumulative Figure at June
Q3=$8,755,000-$4,950,000
=$3,805,000
Fourth
Quarter Apportionment
Where
Q4=Fourth Quarter Apportionment
C.December=Cumulative Figure at December
C.September=Cumulative Figure at December
Q4=$12,500,000-$8,755,000
=$3,745,000
Q2
If
the bank compounds semiannually
FVt = (PVt) (1+r)t
Where:
FVt=Future
value to be received in time t.
P=The
Principal Amount
r=
interest rate per period
t=time
in periods
FVt=?
P=$15,000
P=$15,000
r=0.025
t=10
FVt=15,000(1+0.025)10
=$15,000(1.025)10
=$15,000(1.280084544)
=$19,201.26816
If
the bank compounds quarterly
Everything will remain the same except:
r=0.0125 and
t=20
FVt=$15,000(1+0.0125)20
=$15,000(1.0125)20
=$15,000(1.282037232)
=$19,230.55848
Q3
FVt=P(1+r)t
$1,000=500(1+r)10
2= (1+r)10
1.0717734625362931=1+r
r=0.0717734625362931
=7.17734625362931%
Q4
a).
FV=PV (1+r)t
Where:
FV=$500
PV=?
r=0.04
t=5
PV=FV/(1+r)t
PV=$500/(1.04)5
PV=$500/1.216652902
PV=$410.9635535
b).
PV=$3,000/(1+0.04)2
PV=$3,000/1.0816
=$2,773.668639
Q5
a).
Salaries
Salaries=$[(120,000×1)+(84,000×3)+(40,000×10)+(33,000×22)+(22,000×4)]
=$(120,000+252,000+400,000+726,000+88,000
=$1,586,000
b).
Social
Security=6.2 %($1,586,000-10,000)
=0.062×1,576,000
=$97,712
c).
Health
Insurance=${(280×12)(1+3+10+22)}
=$(3,360×36)
=$120,960
d).
Pension
System=0.08×$1,586,000
=$126,880.
e).
Uniform
Allowance=$(750×36).
=$27,000
f).
Total
Cost=$(1,586,000+97,712+120,960+126,880+27,000)
=$1,958,552
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