Capital Budgeting
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Genre: Finance

You need to compare the benefits and costs of the existing technology and equipment with the proposed technology and equipment. For cash flow and NPV comparison you may adopt an incremental analysis (i.e., differential analysis) or an isolation approach (holistic analysis).

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Capital Budgeting

While making any decision to take up a project, the top management has to look way beyond the financial viability of the project. There are a lot of other factors that can affect the way in which a particular project can be run and hence the top management has to ensure that they look into all these factors while deciding on whether they have to go ahead with the project. This is applicable in some of those projects where the project goals are quantitative in nature and hence cannot be verified. In any project there would be a lot of external factors that cannot be accounted into the cost benefit analysis while measuring the physical viability of the project. One of the factors such as this is the social and economic climate that affects the project. Top management has to ensure that they consider the social factors to understand whether the project is socially viable in the given environment. There are cases where the project makes business sense but the environment where this is being conducted cannot ensure that the business would last there for a long time (Hilfiker, 2008, pg 258). Similarly factors like social responsibility activities that play an important role in the long term brand building of the organization cannot be considered while calculating the monetary gains of the project in the long run (Benson, 2011, pg 114). One another factor that affects is to look at the brand image of the company and to ensure that the project that is being carried out by the company is in lines with the same or else this would dilute the brand image that they have built over the years irrespective of how much gains they are going to make out of the same.

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