Question

1.1 Examine Debt Management as a financial management tool. (500-700 words)

1.2 Elaborate on the importance of capital investment decisions for project cost management. (500-700 words)

1.3 Assess the various transport costs which could be incurred when managing the cost of a project. (500-700 words)

Note: All answers must be typed in.

Answer 1

1.1

Debt management is a form of financial management plan which is coordinated by a specialist company such as Sterling Green on your behalf and provides a structured repayment vehicle for your unsecured debts. Sterling Green's debt management plan uses consumer protection legislation to reduce your monthly payments. The amount that you repay each month is based entirely on what you can afford rather than what your creditors are asking for. It is paid by you to Sterling Green as the debt management company and then divided fairly and proportionately between your creditors

Debt management refers to an unofficial agreement with unsecured creditors for repayment of debts over a specific time period, generally extending the amount of time over which the debt will be paid back. Under debt management, the creditors are offered a Statement of Affairs (SOA). Through this, your disposable income, as estimated by the debt management company, will be proffered to the creditors and they will decide on whether to agree to it or not.

1.2

The aim of a business while making capital investment decisions is maximising the wealth of the shareholder by acquiring assets and yielding profit and to be able to do this, as the owner of your business, you should to be able to find out and determine as to what projects of capital investment would yield a cash flow which is positive and when there are constrained resources, as they generally are in case of start-up or small business or usually for most of the businesses that are facing the credit-crunch, rate the projects in the bases of priority depending on the kind of value they generate.

Capital investment decisions mostly are regulated by the procedure of rating and identifying the organization’s capital investments. The company ought to decide as to which of the capital investments that are given, would ensure the maximum value to their business and thus they can make their capital investment decision.

1.3

The two broad category of transport costs are fixed costs (usually called by economists as inescapable costs) and of variable costs (escapable costs).

Fixed cost :

These are costs, which are incurred before any traffic at all passes.

They include the costs:

(i) Of providing the infrastructure (i.e., the roads, the port or the railway line);

(ii) Of providing, equipping and staffing the terminal facilities (i.e., bus depots, railway stations or airports);

(iii) Of providing managerial, administrative and maintenance staff and their offices and

workshops.

These costs are inescapable because they cannot be avoided except by abandoning the whole operation. They also do not vary with the level of traffic, but remain independent of it. A railway signal-box of the old fashioned kind, controlling a short stretch of line, must be manned (and thus incurs wage costs) whether there is one train or six trains per hour over the line.

Variable Costs:

These are costs incurred by the actual movement of traffic and therefore vary with the level of the traffic passing. They include the cost of fuel, crew wages and the maintenance of vehicles due to the operation of those vehicles in traffic service, for example the replacement of worn bus tyres or routine inspection of an aircraft after so many hours

airborne. They are called escapable because

they can be avoided or escaped by not running a particular train, suspending a particular flight or a private motorist leaving his or her car in the garage and walking to the shops.

But there is one very important consideration, which complicates an otherwise simple concept. In the very short run, to suspend the last bus on Saturday night will probably see only the fuel and tyre wear, for even the driver will have to be paid the guaranteed minimum weekly wages. Over a slightly longer period, all the drivers' duties could be rearranged and perhaps one of them gives notice.