Please, write a main discussion post about the below topic and respond to the two discussion post from my classmates attached. Thank you.
Topic: Capital budgeting is very important in cost and management accounting. Discuss the importance of integrity in the capital budgeting process with the use of appropriate examples.
Instructions for main post (Around 200 words) Please, write a main discussion post about the below topic: Topic: Capital budgeting is very important in cost and management accounting. Discuss the importance of integrity in the capital budgeting process with the use of appropriate examples. (Citations only needed for main post) Instructions for the two classmate responses (around 150 words each) Please, respond to the below two classmate main posts. (Please, the responses need to be a discussion, not an evaluation. You can agree with them and add/comment about their response.) Thank you Classmate post #1: Andrew Welfel Capital budgeting is very important in cost and management accounting. Discuss the importance of integrity in the capital budgeting process with the use of appropriate examples Integrity is defined by Saint Leo University as, “The commitment of Saint Leo University to excellence demands that its members live its mission and deliver on its promise. The faculty, staff, and students pledge to be honest, just, and consistent in word and deed” (n.d., para. 9). This carries over to all parts of life, even cost accounting. Integrity in the capital budgeting process is important at both the macro and micro-levels. When talking about capital budgeting at the macro-level, there is an understanding that millions of dollars are at stake. For large companies, capital investments might be needed for creating a new manufacturing plant or investing money into research to develop new products. With this much money at stake, success is critical. And that success is determined by how accurate and honest the calculations for things like NPV and IRR are. Jobs and the futures of companies are at stake if capital investments were to fail. On a micro-level, the calculations of IRR and NPV themselves require accuracy lest they give bad information and result in losses for the company. For example, let’s assume a given project’s annual discount rate is 8%, which results in the Net Present Value equaling $0 and the Internal Rate of Return is also then 8%. The Internal Rate of Return is compared to the Required Rate of Return (or RRR) to determine if a project should get the green light. If the IRR is higher than the RRR, the project would receive investment dollars and begin. However, if the calculations for the IRR were made in error, it could result in a bad investment and cost the company hundreds of thousands and possibly millions of dollars. Integrity in capital budgeting means taking an honest look at the numbers and making consistent calculations for sound decisions. Classmate post # 2: Kari Grippo Capital budgeting is extremely important in both cost and management budgeting. Capital refers to the long-term, fixed assets, such as the capital investment in a building or machinery (Peavler, 2018). The “budget” aspect of capital budgeting takes into account the anticipated revenues and expenses related to the investment during a specified time period (usually for the duration of a particular project). Through implementing capital budgeting, businesses are able to better determine which long-term capital investments should be chosen by the firm based on “potential profitability,” and thus included in its capital budget (Peavler, 2018). Capital budgeting is essential to firms since many of their capital investment projects make up some of their most important financial investments. Such capital investment projects usually involve large amounts of money and making improper capital investment decisions can have a catastrophic effect on the business. With this being said, the core value of integrity is paramount for firms at all times, but especially when engaging in capital budgeting techniques and decisions. Honesty and integrity play a vital role in accounting and in capital budgeting because they allow investors to trust the information they receive about companies in which they invest (Ray, n.d.). Business managers usually rely on honest accounting in order to run their companies properly and budget adequately without the fear of biased reporting. Therefore, honesty and integrity in the capital budgeting process comprise some of the primary characteristics that allow the financial decision-makers of a company to make appropriate judgments and ultimately budget in an effective and unbiased manner. The capital budgeting process is highly structured. Managers must adhere to the process by upholding integrity in order to make the decisions that are truly best for the business, thereby benefitting the whole and not just the individual (i.e. upper-level management). By following the framework, companies can be sure they have “thoroughly evaluated every risk and return associated the project with minimal margin for error” (Thompson, 2018). If the decision makers for a company were to “cut corners” in the capital budgeting process, they would not be acting with integrity and they would ultimately be putting the whole company at risk for financial while also diminishing the firm’s reputation. An example may be if a firm is deciding which capital investment project to move forward with and upper-level management decides they would want to invest in a new building because they want to have newer and more updated offices. The same company’s factories may demonstrate a greater need for new machinery which provides a higher rate of return and less risk. By choosing to invest in the buildings rather than the new machinery, upper-level management is not acting with integrity as they are making a capital budgeting decision that is both biased and self-serving.