AA3304 - Assignment 3 - Chapters 9-10-11-12

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AA3304 Budgeting for Administrators Professor Tara Nuwal A-3 F23 Due Date: 10/28/23 Assignment 3 – Chapters 9, 10, 11, and 12 Chapter 9 – Page 204 Discussion Questions Q9.1. What is the benefit theory and how is it organized? Benefit theory classifies the benefits that nonprofit organizations generate, and it directs nonprofits to seek financial support from those sources that demand their services. It also classifies nonprofits into four broad categories based on the goods and services they provide: private benefits, group benefits, public benefits, and trade benefits. It posits that nonprofits should seek support from the beneficiaries and/or those who value the benefits. Q9.3. What are Heartfelt Connectors as compared to Beneficiary Builders? Heartfelt Connectors are nonprofits that acquire finance and grow large by focusing on causes that resonate with large numbers of people and by creating structured ways for these people to connect and donate. Beneficiary Builders are nonprofits that are financed by reimbursement for services they provide to specific individuals, but at the same time, they rely on people who have benefited from their services in the past for contributions. An example of Heartfelt Connectors is any organization that focuses on environmental issues, international issues, and medical research. An example of Beneficiary Builders is when hospitals and universities solicit contributions from alumni and previous patients to benefit previous customers. Q9.7. What are Beneficiary Brokers, Resource Recyclers, Market Makers, and Local Nationalizers? Beneficiary Brokers are nonprofits that compete to match up government services with intended beneficiaries, for example, nonprofits that provide services for students who apply for student loans. Resources Recyclers are nonprofits that collect donations from corporations and individuals and distribute these donated goods to other nonprofits that provide direct services to needy recipients, for example, food banks that distribute food to other organizations like food pantries, soup kitchens, homeless shelters, etc. Market Makers are nonprofits that provide services where there is a need but no market to fill the need, for example, healthcare is restrictive and complex when it comes to laws and regulations, therefore contributions are used to directly support patients in need, healthcare education, and prevention efforts. Local Nationalizers are nonprofits that focus on local issues that are also common and important across the nation, an example of this is any nonprofit that has grown by creating a national network of locally based operations to help poor people, one organization is Big Brothers Big Sisters of America.

Assignment 9.2 – Page 205 Using the Benefits Theory in Revenue Strategy. You are starting a nonprofit that will provide public safety benefits to society at large. Which possible revenue sources should you consider approaching for financial support, based on the benefit theory introduced in this chapter? The possible revenue resources to consider approaching for financial support, based on the benefit theory introduced in this chapter are donations and government funding. Chapter 10 – Page 223 Discussion Questions Q.10.1. What is performance management? Performance management identifies objectives, key performance measures, and the institutionalization of the system in terms of data collection (i.e., what data are to be collected, by whom, and when), how the data are to be processed to produce the performance measures, the protocol for interpretation of the performance measures, and the computer system that will store and manage the data over time for comparison. Q.10.7. What is performance-based budgeting? Performance-based budgeting allocates resources based on service performance; both planned and actual performances are measured in terms of service effectiveness and efficiency. Q. Explain (i) inputs, (ii) outputs, (iii) outcomes, (iv) efficiency, and (v) effectiveness Inputs are resources used to conduct the activity or implement the program that the nonprofit has envisioned. Outputs specific services or products produced by the activity or program; it is the quantity of the activity when it is finished. Outcomes are long-term benefits as a result of the activity. Efficiency is the relationship between the amount of input and the amount of output or outcome. Effectiveness is how successful a program has been in the long term. Chapter 11 – Page 244 Discussion Questions Q. Explain the concept of the Time Value of Money and Cost-benefit analysis in the context of nonprofits. The concept of the time value of money in the context of nonprofits reflects the fact that money available at present is worth more than money of the same amount in the future. Money differs in value at different times, however, cash flow in the future must be adjusted before the net gain or loss of an investment can be determined. The cost-benefit analysis quantifies impacts into a common monetary denominator, allowing policymakers to compare projects, programs, or investments in diverse policy and program domains and nonprofits use this framework in their internal investment decisions. Assignment 11.1 – Page 244 Calculating Future Value

Your nonprofit organization has received a temporarily restricted fund of $100,000 to be used in five years. You can deposit it in a bank to earn 6 percent interest compounding yearly. How much will you have in five years? You will have $133,822.56 in five years. FV = pv * (1+i)0 n FV = $100,000 * (1+.06) 5 FV = $100,000 * 1.33823 = $133,822.557 FV = $133,822.56 (value in five years) Chapter 12 – Page 263 Discussion Questions Q12.1. When is it necessary for a nonprofit to create a capital budget? A nonprofit must create a capital budget after decisions are made concerning which programs are mission-critical and what projects/assets are needed to support the programs. It is necessary because it is time-consuming and decisions must be proficient in the decision- making and managing capital structure, operating reserve, and cash flow to ensure that the nonprofit can build up debt capacity and a good credit rating for lower cost and higher financing flexibility, this should be in the context of long-term. Q12.3. What kinds of situations might you use life-cycle costing? Life-cycle costing is used in purchasing decisions. For instance, if you are preparing to purchase appliances for your home, you would need to consider more than just the up-front price of the products. You would also need to take into consideration the cost of having these appliances. How long are they going to work before you need to have any repairs to them, how much will those repairs be, and after the first breakdown, how often are they going to need repairs? Q12.7. Which bonds have tax exemption-corporate or municipal? Municipal bonds have tax exemption. With municipal bonds, investors are exempted from paying tax on interest income from these bonds. Municipal bonds also pay lower interest rates than corporate bonds for the same credit quality, saving nonprofits in capital financing costs. Assignment 12.1 – Page 263 Conducting Life-Cycle Costing A Catholic school is considering refurbishing the lighting system in its administration building. After initial investigation, the school procurement office has narrowed down the options to two: Option 1 is an Ergolight system that costs $500,000 to purchase and install; Option 2 is a conventional system that costs $100,000 to purchase and install. Both systems are expected to last for twenty years. The energy and maintenance costs for Option 1 are $20,000 and $2,000, respectively. The energy and maintenance costs for Option 2 are $50,000 and $10,000.

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Assume all costs are to be paid at the end of the year and the real discount rate is 4 percent. Which lighting system should the school select based on financial considerations? Use the LCC method to address this question. Total Cost or Life Cycle Costs (LCC) = A + O + M + D - Acquisition Cost + Operational Costs + Maintenance Costs + Disposal Costs) Option 1 - PV (Energy cost, set 1) = PV (4%, 20, -20,000) = $271,806.53 - PV (Maintenance cost, set 1) = PV (4%, 20, -2000) = $27,180.65 LCC for option 1 = $500,000 + $271,806.53 + $27,180.65 + 0 = $798,987.18 Option 2 - PV (Energy cost, set 2) = PV (4%, 20, -50,000) = $679,516.32 - PV (Maintenance cost, set 2) = PV (4%, 20, -10,000) = $135,903.26 LCC for option 2 = $100,000 + $679,516.32 + $135,903.26 + 0 = $915,419.58 The school should select the option 1 lighting system. While initial costs may be roughly five times more expensive, year-to-year maintenance is much cheaper, saving them $116,432.40 in that full 20 years compared to lighting system option 2.