THE CAPITAL BUDGETING OF EXPERIMENTAL TEST EQUIPMENT IN THE AEROSPACE AND DEFENSE INDUSTRY

The purpose of the study was to investigate whether accepted capital budgeting techniques are applied to the acquisition of experimental test equipment in the aerospace and defense industry. Currently accepted capital budgeting techniques were reviewed to establish a standard for comparison with the actual practices used by aerospace and defense firms for the acquisition of experimental test equipment. A sample of nine aerospace and defense firms was selected. From each firm, three of the most costly items of experimental test equipment were chosen for investigation for a total of twenty-seven items. The information was recorded through a visit to each firm and an interview with a participant representative who was knowledgeable about the equipment items chosen. The survey results indicated that only 3.3% of the experimental test equipment items included in the sample was acquired because of a favorable financial analysis. Sixty-four percent of the value of the items sampled was acquired by firms which had established capital budgeting policies, but the equipment was acquired without regard to these policies or the results of their application. Thirty-two point seven percent of the experimental test equipment was acquired by firms that did not have capital budgeting policies applicable to experimental test equipment. The conclusion of the study is that a vast majority of the experimental test equipment items is acquired without the meaningful application of accepted capital budgeting techniques. The lack of application of accepted capital budgeting techniques contributes to duplicate purchases and underutilization of experimental test equipment within the aerospace and defense industry. The recommendations of the study are that the aerospace and defense industry initiates a cooperative effort, through the Aerospace Industries Association, for the acquisition and joint use of experimental test equipment. If the aerospace and defense industry does not react to the underutilization of experimental test equipment, there is the possibility that a society which is trying to protect its natural resources will force a solution upon them.