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In your reading this week, you will see that there are four calculations used in capital budgeting that help determine the best capital project or purchase to move ahead with from a financial standpoint (payback period, ARR, NPV and IRR). These are good planning tools to try to determine which projects may be the best use of capital for a company, but can decisions be made strictly by the financial benefits? What would be some subjective reasons for going forward with one project over another, even if the chosen project doesn’t provide as good of a return on investment?
Here’s an example of what I’m looking for. The hospital I work for weighs capital decisions based on factors such as whether or not it will improve patient care, if it helps to promote the mission or vision of the organization, and if this will provide a new service line not currently available in the area. These factors often take precedence over the financial return calculations.
Please discuss subjective questions that could be involved in a capital purchase decision. What are some factors that could be more important that the financial return on an investment. Please use examples.