The Capital Budgeting Decision: An Empirical Study Relating the Impact of the Application of Principles of Creativity, New Production Techniques, and Cost Improvements on Profitability

Abstract

The purpose of this study is to explore the application of modem business theory upon a practical example and to discuss the possibilities of applying more advanced concepts in the future. Specifically, the author delves into the effects of theories of creativity, new production techniques, and cost improvements upon managerial decisions concerning capital budgeting, and the corresponding results on profitability. In the empirical example, the advisability of purchasing two raw materials in place of one and of making additional capital investments in four separate plants to produce at a lower cost the same product, cable, is explored. Although many technical areas are involved, these are not considered within the scope of this paper.