Question

• 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

Intangible benefits are those benefits which cannot be measured or quantified in numbers. Example: Brand awareness, employee morale.

Pros of identifying the potential intangible benefits:

1. It helps in increasing the customer satisfaction rate. Even though if the investment does not give return as per our requirement but if due to the investment if it raises the customer satisfaction rate then in long term its a very good deal to make the investment.

2. It helps in improving the employees motivation. If a business always think financially, then it may not survive in long term. Its a saying that if your employees are motivated and happy then your business will reach new heights.

3. It helps in creating goodwill of the company.

Cons of identifying the potential intangible benefits:

1. It would impact the revenue and financials of the company since it doesnot consider the profitability of the comapany.

2. It is very necessary to understand that the cost incurred for the intangible benefits are worth and would benefit the company in future otherwise it may impact the company on a large scale.

3. It often complicates the capital budgeting process because their value can be difficult to quantify.

Outcome if management fails to consider intangible benefits:

If the management fails to consider intangible benefits then in long term the reputation of the company will reduce, will impact the market share, difficulty in survival of the company as the company only wants to look good in the books and it does nothing good for customer, society, or employees. So the conclusion is that it is very important to consider intangible benefits in capital budgeting process.