Capital Budgeting Projects - Research Paper Example

Capital Budgeting Projects Government has the obligation of ensuring development and improvement of infrastructure in their areas of jurisdiction. The multiple number of projects and the financial limitations calls for the government to do an evaluation of their capital projects. The most beneficial projects will be undertaken first because they improve the living standards of the citizens (Mikesell, 2011). However, the governments in appraising their projects face the problems of measuring the cost and benefits and in r determining the costs.

San Diego capital improvement program constitutes aggressive projects that aim at improving the state of the roads, bridges and airport. The government of San Diego in undertaking these beneficial projects will face the difficulty in determining exactly the benefits. The benefits such as the effectiveness in transporting goods and reducing the cost of transportation can be easily highlighted. However, quantifying these benefits in monetary terms is very complex and cannot be accurately measures (Mikesell, 2011).

The value of the goods transported and the speed of moving the human resource may not be determined without recording errors. The pursuance of these projects will also have some costs and negative externalities. During the development of the transport infrastructure, the government will incur costs of destroying the environment and moving the locals in order to get the space for expanding the projects. Moreover, destruction cost to the natural resources like rivers, trees and other resources cannot be easily determined.

The increased number of automotives would increase the level of air pollution whose long term impact is hard to determine. Besides, the government must discount the future benefits and costs to determine the net present value. The rate of discounting the future benefits and the costs will pose the greatest challenge to the government (Mikesell, 2011). The use of an inappropriate rate may impair the decision of pursuing the project.In summary, the discounting of government projects remains difficult because of the non profit characteristics of the projects.

The government in selecting the projects must however ensure that the projects pursued have more benefits compared to the costs. The San Diego capital improvement project in which the transport infrastructure is improved will definitely have more benefits than cost. ReferenceMikesell, J. (2011). Fiscal administration: Analysis and applications for the public sector (8th ed,). Boston: Wadsworth, Cengage Learning.