Question

1) Please respond to the following: Analyze the pros and cons of identifying the potential intangible benefits of investment proposals.

What is the outcome if management fails to consider the intangible benefits in a capital budgeting decision?

Answer 1

The intangible benefits definition is that they're gains you can't measure so easily. A project that boosts employee loyalty or customer satisfaction provides a benefit, but it may be difficult to measure the exact financial gain.

Onereason that intangibles deserve more respect is that they are now a significant part of a business’s worth. More than 25 percent of the value of enterprises is now based on intangible assets, such as brand image and market share, according to economists.New projects and initiatives cost money; measuring the intangible benefits can help decide if the money is worth spending.

An intangible benefit is a subjective benefit that one can't actually touch, and is also difficult to measure in terms of dollar.

Examples of potential intangible benefits of investment proposals will be the improved safety, increased product quality, and an enhanced employee loyalty.

Intangible benefits complicate capital budgeting evaluation process due to the fact that they can't be easily measured, hence, their value can be hard to quantify.

When intangible benefits are ignored in a capital budgeting decision, it

may result in rejecting of projects that may have financial benefits to the company.

Pros-

It can add to the overall prospective of whether to go through with an investment or not.

It can lead to improved safety, increased product quanlity, enhanced employee loyalty,reduction in employee turnover.

Helps to gain brand image and goodwill.

Cons-

There is no certainty that intangible benefit would materialise.

If an investment is taken majorly on them, it could result in loss.

It is difficult to measure exact financial gain.

If intangible benefits are ignored in capital budgeting decision,it may result in rejection of projects which may have provided financial benefits in future.