Justification and Financial Analysis for CAD

Many factors influence the capital investment decision. System costs and benefits are weighed by methods of financial analysis to determine the advisability of an investment. Capital, expense, and benefits as related to CAD are discussed and model calculations are included. An example is treated by the simple payback method and the more sophisticated methods of Net Present Value (NPV) and Internal Rate of Return (IRR). The NPV and IRR approaches include in the calculation the time value of money and provide a sounder foundation on which to base the purchase decision. It is hoped that an understanding of these techniques by technical personnel will make an optimum system purchase more likely.