Question

Capital budgeting focuses mostly on financial measures in decision making. The discussion in the text also covers many non-financial measures that should impact capital budgeting decisions. Please describe in your own words several non-financial measures companies should consider with capital purchases.

Answer 1

1. Enviornment Issues- Companies need to consider the impact of investment on the environment and related costs company may have to pay in future. Sometimes, companies need to invest in project which does not pay in terms of financial measures of capital budgeting but the company still need to do it to ensure that it is perceived as social responsive.

2. Customer's satisfaction- Customer is always the king so the new investment should include measure to ensure that customer satisfaction is preserved.

3. Availability of manpower- Some investment required skilled manpower that may not be available locally.

4. Government regulation- All the current government laws need to be considered to ensure that investment is not violating any of them.

5. Competitor's action-Company need to evaluate whether competitor can invest in the same technology being used so as to reduce future cash flows.

6. Technology change- Whether the technology in which the company is investing is going to be obsolete soon.