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Gov and NPO scenario: Capital Project Consideration

Johnstown is considering a capital project. For each of the following legally feasible alternatives, compare and contrast the desirability of each from the viewpoint of (1) the official in charge of administering capital projects funds, and (2) taxpayers residing in the governmental unit.

a) $5,000,000 face value of 10-year special assessment bonds can be sold at 98 with a semiannual interest at the normal annual rate of 6 percent. The discount would be borne by a debt service fund.
b) Same as item a above, except the discount would be borne by the capital projects fund.
c) Same bond issue can be sold at 103 with semiannual interest at the nominal rate of 9 percent; the premium would be transferred to the debt service fund.
d) Same as item c above, except the premium would be retained by the capital projects fund.

Solution Preview

From the viewpoint of the official in charge of administering the capital projects fund:
Under possibilities (a) and (c) the capital projects fund receives the amount authorized from the bond issue.

Under (b), the fund receives $100,000 less than the amount authorized.

Under (d), the fund receives $150,000 more than originally ...

Solution Summary

Provides answers to four scenarios from two perspectives: the official in charge and the taxpayer.

$2.19