# Budget indicators of the investment project - Innovative management

## Budget indicators of the investment project

The indicators of the national economic project make it possible to determine its quality from the point of view of the interests of either the national economy as a whole or the interests of regions and industries. Budget project indicators reflect the impact of the project on the revenues and expenditures of the federal, regional or local budget. As characteristics of the budget, the indicators considered above are used. These include net present value, profitability index, internal rate of return, yield to maturity, payback period.

The balance of revenues and expenditures for the year is called the budgetary effect. The annual balance is calculated by the formula

where - the annual balance, or excess of budget revenue over its expenditure in the year under the number j , obtained from the operation of the project object; - the budget revenue in the year under the number j , obtained from the operation of the project object; - the budget expenditure in the year under the number j , directed from the budget for the creation and operation of the investment project facility. The budget effect has the minus sign if the income received in the given year is less than the consumption in the same year.

The budget net present value is the sum of the discounted annual balances. This indicator is calculated by the formula

where NPV is the net reduced budget revenue; q is the discount rate; n is the lifetime of the project.

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If then the project can be accepted for further consideration.

Another budget indicator is the profitability index PI:

where - income in the year under the number j; - investment in the year at number y. The total project period is n years. It should be borne in mind that in those years when investments are not zero, incomes are zero, and vice versa.

Another budget indicator is the internal rate of return. This norm is determined by solving the equation

where and - the budget rate of return. The more this indicator, the more effective the project. The project is accepted for further consideration if the budget rate of return without inflation is more than 10%.

The fourth indicator is the budget return on investments to maturity. The equation for calculating it can be written in the form

where r is the project's budget return to maturity. It is necessary to pay attention to the fact that in those years when incomes are absent, should be assumed to be zero;

where - investment costs under the number j; q - the cost of capital; n 1 - the term of the last investment.

Finally, another indicator is the budget payback period. In determining the payback period, first of all, find the amount of investment listed at the time of their completion. This uses the formula

where - an investment paid at the end of the year under the number - a period equal to the time interval from end of the year

under the number j until the end of the investment; q is the discount rate. Then, using the iterative method, similarly described above, determine the number of the year in which the project will pay off and the missing part of the year.

According to these indicators and the social significance of a number of projects are selected the most qualitative. At the same time, the state or regions can take full or partial financing of these projects.

When calculating project quality indicators, payment flows from this project are used, coming to the budget.

Social and political results are difficult to quantify. Therefore, they are considered as additional indicators of project quality. They are taken into account when deciding on the state support of the project.

Example 14. The city's water supply system is designed for 20 thousand apartments. Demand for water is constantly increasing due to the growth of housing stock. The forecast for the growth of housing stock, and hence, water consumption for the next 18 years is presented in Table. 6.11.

Table 6.11

Data for Example 14

 Number of the Year 1 2 3 4 5 6 7 OS OS Growth in housing stock, thousand square meters. m 10 15 20 25 30 35 38 40

It was decided to reconstruct the water supply system in order to increase its capacity to 40 thousand apartments. Investment costs for reconstruction will be 850 thousand rubles for the first year, for the second year - 4,350 thousand rubles, for the third year - 2,650 thousand rubles. After the reconstruction, starting from the fourth year, the additional operating costs will be 700 thousand rubles per year. The benefits to the budget from water fees and additional tax collections in the fourth year will increase by 850 thousand rubles, in the fifth year - by 1,700 thousand rubles, in the sixth year - by 2,550 thousand rubles, in the seventh year - by 3000 thousand rubles. and from the eighth year to the eighteenth - by 3400 thousand rubles. We believe that all inflows and outflows of funds fall at the end of the year. The discount rate is assumed to be 10%. Define the budget net present value and the budget internal rate of return.

Solution

Let's compose the initial data in tab. 6.12 and reflect in it the calculation of the budgeted net present value by years.

Table 6.12

To the solution of the example 14

 Number of the Year 1 2 3 4 5 6 7 8-18 Growth in housing stock, thousand square meters. m 10 15 20 25 30 35 38 40 Investment costs, thousand rubles. 850 4350 2650 - - - - - Annual additional operating costs, thousand rubles 700 700 700 700 700 Benefits from the project for the budget, thousand rub - 0 0 0 850 1700 2550 3000 3400 Budget effect, thousand rubles -850 -4350 -2650 150 1000 1850 2300 2700

The integral budget net present value is

The equation for determining the budget rate of return has the form

Solve the problem in the MS Excel application. The solution of this equation is and = 0.1915, or 19.15% per annum. Based on the received indicators, the project can be adopted for further consideration.

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