Evaluating tangibles and intangibles of capital investments

Abstract

<p>Capital budgeting techniques, such as discounted cash flow analysis, are used extensively in the evaluation of capital investment projects in business. The techniques, however, are not employed without flaws, among which are the overreliance on quantitative· analysis while ignoring other intangibles and qualitative factors. The objective of this paper is to propose an adjunct methodology - the Analytic Hierarchy Process - for making capital investment decisions. The methodology is superior to other techniques alone because (1) it incorporates both tangibles and intangibles, quantitative and qualitative factors in the analysis; (2) it improves the consistency in judgment as compared to one multiple-attribute decision model; and (3) it is flexible as the hierarchical structure can be modified easily without substantial disruption in its performance.</p>