From the course: Accounting Foundations: Managerial Accounting

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Considering qualitative factors

Considering qualitative factors

From the course: Accounting Foundations: Managerial Accounting

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Considering qualitative factors

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- In explaining the fundamental concepts of capital budgeting, we have focused on the numbers. However, a discussion of capital budgeting is incomplete without mentioning factors that cannot be reduced to numbers. Sometimes qualitative factors can override quantitative analysis in strategic and capital investment decisions. Here, we consider three types of qualitative factors: an investment's effect on the quality of products and services offered, an investment's effect on the time with which products and services can be produced and delivered to customers, and other qualitative factors. So far we've made the determination of whether a capital investment decision is a good one based solely on the financial return computed using one of four methods. If the financial return was positive, our conclusion was to invest. If the financial return was negative, we recommended that the project not be undertaken. However, organizations must carefully manage and balance decisions across three…

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