Abstract Accounting education is increasingly focused on developing students' ability to structure and analyze complex problems and to adopt a managerial/strategic approach to issues. To support this change, course materials must be developed which emphasize the new focus. This hypothetical case uses the development of a new product to introduce a strategic dimension to the teaching of capital budgeting. Students are led to consider factors which include the cannibalization of an existing profitable product and the deterrence of competitors' entry into the market. The case analysis begins with a simple net present value analysis of the decision without considering the potential impacts on competitors' actions. Then it progresses to increasing layers of complexity which introduce the strategic aspects of the decision. This process solidifies students' mastery of capital budgeting methods. lt also helps them to appreciate that effective management requires going beyond the learning of techniques to consider the larger, competitive context.
Chow et al. (1995) studied this question.