Abstract
Sound financial management and decision-making on capital investments are critical to company survival and long-term success. With this truth affirmed by the global financial crisis, this study sets out to examine the capital budgeting tools at National Investment Bank Limited (NIB) in Ghana, adapted for management decision making. It establishes the various capital budgeting techniques used by NIB in undertaking investment projects and how these decisions affects the firm’s value, profit and growth rate. As methodology, the study adopts both primary and secondary sources which are further analyzed with the use of correlation analysis. The findings reveal that there is a positive relationship between the variables and their effects are significant. The study concludes that, the firm used capital budgeting techniques such as Net Present Value, Internal Rate of Return, Profitability Index, Discounted Payback Period, Payback Period and Accounting Rate of Return in order to maximize the firm’s value which is usually affected by the profit and the growth rate. Given the conclusion herein, the study recommends among others that NIB should educate and train their staff on the various capital budgeting tools and the formation of knowledgeable team that will evaluate projects using the capital budgeting tools due to its irreversibility nature, huge investment outlay and its long term effect. Keywords: Capital budgeting, Techniques, Cash Flow, Investments, Decision making, Ghana DOI: 10.7176/RJFA/11-4-04 Publication date: February 29 th 2020
Highlights
Capital planning is an organization's conventional procedure utilized for assessing potential uses or ventures that are critical in sum
With the objective to examine the capital budgeting tools used by National Investment Bank Ltd, this study explores on the critical role capital budgeting plays in making investment decisions in a bid to mitigate risk and uncertainties for the realization of business goals
The capital budgeting appraisal techniques mostly used by management are listed in order of preference Net present value, Internal rate of returns, Profitability index, Equivalent annuity, Payback period, Discounted payback and Real option analysis, Accounting rate of returns
Summary
Capital planning is an organization's conventional procedure utilized for assessing potential uses or ventures that are critical in sum. Capital planning is a procedure that is worried about choices made by firms on long haul venture undertakings to accomplish the organizations in general objectives and goals (Dayananda et al, 2002). First and foremost, a company must determine its corporate strategy; its large set of goals for future investments before taking into account capital budgeting (Peterson and Fabozzi, 2002). According to them, it is through long-term investment that the goal is to increase the wealth of shareholders and can help attain this corporate strategy
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