Final answer:
It is false to state that intangible benefits should be ignored in capital budgeting decisions. These benefits, though less tangible, can contribute significantly to long-term success and need to be estimated in the analysis.
Step-by-step explanation:
The statement that intangible benefits of automation should be ignored in capital budgeting decisions is false. Intangible benefits, although harder to quantify, can have a significant impact on the long-term success of a project and potentially on a company's competitive advantage. For instance, automation may improve customer satisfaction or enhance brand reputation, leading to increased sales over time. It is important to attempt to estimate the value of these benefits as part of a comprehensive analysis despite the associated challenges.
When comparing the costs of various business models, it's clear that the costs involved in producing cars will significantly differ from those in producing computer software or services like haircuts or fast-food meals. Similarly, decisions about capital investments, like increased spending on the space program versus airports and air traffic control, must consider their impact on productivity and economic growth. In each case, while estimating tangible costs and benefits may be more straightforward, intangible factors also play a critical role.
In economic theory, while additional marginal gains may become smaller, focusing solely on quantifiable costs can be misleading. Sunk costs are a classic example of an irrelevant factor for current decisions since they cannot be recovered and do not influence the incremental benefits or costs of a future project.