Capital Budgeting

1 Capital Budget Capital Investment = $501,624.97 Revenue

$

327,360.00

Wages & Salaries

$

188,444.00

Payroll Tax Expense

$

54,000.00

Liability Insurance

$

1,000.00

Phone, Internet, website

$

4,000.00

Bank service fees

$

818.40

Merchant account fees

$

1,800.00

Rent expense

$

4,200.00

Utilities expense (water &

$

270.00

Software

$

40.92

Advertising expenses

$

3,140.90

Legal &accounting expense

$

8,140.90

Non-operating expense

$

5,000.00

Employee expenses

$

141,849.35

Cost of sales

$

88,920.50

Total Expenses

$

501,624.97

Net Operating Income

$

-174,264.97

Dividends payable

$

Income before tax

$

-184,122.46

Taxes

$

32,858.32

electricity)

9,857.50

2

Net income

$

-216,980.78

The capital budgeting of Lifewell Behavioral Wellness is a technique that the organization can use to assess and judge how its proposed investment is likely to fair on and whether it will be profitable (Kenton & James, 2020). Most companies and businesses evaluate their proposed investments through capital budgeting. The process involves projecting the project’s cash inflows and outflows to determine which one will be greater than the other. If a firm projects a positive net income for a proposed project, its revenues can cover all the operating expenses; hence, the investment is profitable, and it can sustain itself. However, an organization that finds a negative net income after project evaluation will not be beneficial, and its revenues cannot finance its operations.

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3 Such an organization, for example, Lifewell Behavioral Wellness, is likely to fall since there will be no sufficient money to run its operations.

The determination of cash flows results in a negative net income, implying that the total expenses are more significant than the total revenue. The net income is the amount of money that remains after the firm has paid all its costs (Murphy, 2020). Despite having a positive revenue of $327,360, the net income becomes a negative value since the company’s expenses exceeds its total revenue. To calculate net income, we subtract the total costs, including taxes and the cost of sales, from the company’s total revenue. The total revenue here is the projected revenue which will be obtained from Medicaid, Medicare, Blue Cross Blue Shield, Humana, Coventry, Aetna, Kaiser Permanente, Cobra, Grants, and Cash Pay. All these sources of the projected revenue are not sufficient to cater for all the expenses; hence, the negative net income. Thus, Lifewell Behavioral Wellness is a non-profit sole proprietorship healthcare organization that does not make any profit; the organization makes losses.

The creation of a capital budget for Lifewell Behavioral Wellness is essential since it helps the organization to determine its net income from the cash flow. Through the net income, an organization can tell the amount by which its total revenues exceed its total expenses. Also, the Lifewell Behavioral Wellness can realize how profitable their operations are. From the above capital budget, the organization’s net income is negative; hence, it will face significant challenges since it is not earning sufficient amount of money to sustain its operations. Perhaps if the total revenues balanced the total expenses, the organization might be in a better position.

However, a negative net income benefits a company in terms of tax liability since when a firm is not making any profit, it will not be liable to pay taxes. Any firm that operates on losses is free from tax liability is not safe since the money saved due to tax relief cannot be sufficient to cover

4 for the losses. Our organization will not sustain itself; hence, collapsing since the available revenue cannot cater for the expenses. Perhaps short-term measures can help Lifewell Behavioral Wellness to reduce the amounts of losses to prevent it from collapsing.

5 Reference Kenton, W., & James, M. (2020). Net Income (NI). Investopedia. https://www.investopedia.com/terms/n/netincome.asp.

Murphy, C. B. (2020). Is It Possible to Have Positive Cash Flow and Negative Net Income?

Investopedia. https://www.investopedia.com/ask/answers/05/060105.asp.