Simultaneous financial evaluation of a complex set of capital budgeting alternatives: a mathematical model

Capital budgeting technics provide for financial evaluation of planned purchases of equipment or other major investments. In capital budgeting, the laboratorian often is faced with a complex set of alternatives, including leasing, installment purchasing, contracting work to another laboratory, and outright purchasing. This paper presents a mathematical model useful for simultaneously evaluating the financial worth of all such alternatives under the same set of assumptions. Armed with the results of financial evaluation and evaluations of quality, turnaround time, and other patient-care factors, the laboratorian can make better decisions regarding the choice of method which, in turn, will affect the productivity of the laboratory. The model is tended for application to mutually exclusive alternatives and includes three useful capital budgeting technics: (1) payback period, (2) net present value, and (3) profitability index. The technics are demonstrated as well as a method of programming the model in financial planning software for solution by microcomputer.