Capital budgeting techniques

The cost of new medical imaging equipment for a radiology practice is a major capital purchase. Due to rapid advances in technology and imaging techniques, the management decision to purchase new capital equipment can present itself every few years. The present report explains various financial management techniques that are generally used by corporations worldwide to determine their cost of capital. The cost of capital is the return on a capital investment project required by the providers of the capital. The published financial accounts of Sonic Healthcare Limited, Australia's largest pathology company, are reproduced as a numerical example of how the financial accounts of a business may be used to determine its cost of capital. The cost of capital forms an integral part of management's financial decision-making process.