Abstract The challenge of applying standard capital budgeting techniques to the evaluation of investments in new technology, such as computer-integrated manufacturing and biotechnology, has received increasing attention in recent years. Because the complete set of benefits from such investments is difficult to quantify in financial terms, capital budgeting techniques that rely on net present value as the performance metric tend to favor investments that are less risky, shorter-term and whose consequences are more readily quantifiable. While this is recognized in contemporary management accounting textbooks, there is a dearth of cases drawn from actual capital budgeting settings that pose such issues in ways that can be addressed effectively in the classroom. We present such a case here. It describes a capital investment decision that includes not only the usual considerations encountered in new-technology settings, but also entails risks involving human health and life expectancy. Specifically, the case describes an actual decision faced by a large community hospital involving a choice between two alternative types of cardiac imaging equipment. The two types of equipment differ both in terms of their acquisition and maintenance costs and the accuracy with which they classify patients as needing a follow-up cardiac catheterization. Diagnostic accuracy affects the expected future costs of patient care. Thus, the choice between the two technologies involves a trade-off of costs and the quality of health care provided to the hospital's patient population.
Ashton et al. (Sun,) studied this question.