City Council Meeting

Question 1

You are to prepare for a challenging City Council Meeting. You need to be able to give the other council members and mayor an accurate “city of affairs” to make sure significant cuts can be made in the appropriate areas, and other critical areas can continue to be funded. Using the City of Huntsville 2015-2016 budgets, analyze the financial plan to respond to the following questions in a two- to three-page paper:

• Based on the review of the City of Huntsville’s Financial Plan: What is the fastest-growing category of expenditures during the planning period? Justify the answer with examples.
• What percentage of the City of Huntsville’s revenue comes from the general property tax? How much is this tax growing in each year of the financial plan? Justify the answer with examples.
• Evaluate the existing capacity of refunding or reorganizing existing debt organizations.
• Analyze the various funding alternatives that can be used to support debt obligations.

The assignment must follow these formatting requirements:

• Include an abstract and conclusion that you will name (Budget Summary), and attach the budget summary as an Appendix.
• Be typed, double-spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA.

Question 2

A capital investment project that generates new opportunities is more valuable than one that doesn’t. A flexible project, one that does not commit management to a fixed operating strategy is more valuable than an inflexible one. When a project is flexible or generates new opportunities for the company, it is said to contain real options.

In this assignment, you are to discuss the budgeting implications of different option strategies and the cost-benefit issues associated with such decisions.

• Why might recognizing a real option raise but not lower a project’s net present value (NPV) as found in a traditional analysis?
• Why do we tend to underestimate NPV when we ignore the option to abandon?
• What do you suggest as a cost-effective approach to capital budgeting analysis when a project contains real options.

Write a one-page memo in which you explain the answers to any two of the three questions.