Capital Budgeting Techniques Research Articles

Capital budgeting techniques and financial performance: a comparison between SMEs and large listed firms

Capital budgeting techniques and financial performance: a comparison between SMEs and large listed firms

Capital Budgeting Methods and Practices: Evidence from Privately Owned Firms in Pakistan

The aim of this research paper is to study the degree of using capital budgeting methods on choosing the appropriate project for investment by privately owned firms in Pakistan. We surveyed 58 chief executive officers (CEOs) of privately owned firms. Our survey contained fifteen questions to explore capital budgeting and cost of capital. The study covers the period from September, 2018 to May, 2019. Firms rely heavily on IRR as a project evaluation method. According to cost of capital methods, average historical rate of return on common stock is mostly used by the firms. The regression test showed significant relationship between firm characteristics with respective to the use of capital budgeting techniques and cost of capital methods.

Financial Feasibility Analysis of XYZ Company Market Expansion Plan to Kalimantan

XYZ Company, a B2B manufacturer of Songkok in Gresik, East Java, plans to expand its market by establishing a new distribution warehouse in Banjarmasin, Kalimantan. This strategy aims to leverage the growing demand for Songkok in Kalimantan, which has a significant Muslim population. The primary goal of this study is to evaluate the financial feasibility of purchasing versus renting the new warehouse for this investment plan. The financial feasibility analysis was conducted in multiple stages. Pro forma financial statements were constructed for both scenarios, incorporating historical data of the company's financial statements, industry benchmarks, and growth assumptions from management interviews. Free Cash Flow to the Firm (FCFF) and terminal cash flows were calculated using the Weighted Average Cost of Capital (WACC). Capital budgeting techniques were then used to evaluate financial feasibility, including Net Present Value (NPV), Internal Rate of Return (IRR), and Discounted Payback Period. Risk assessment was performed through sensitivity analysis and Monte Carlo simulation. Results indicate that the renting scenario, with an initial investment of IDR 242 million, has a higher NPV and IRR than the purchase scenario, which requires an initial investment of IDR 944 million. The renting scenario also offers a faster-discounted payback period of 2 years and one month, making it more feasible. Risk assessment shows moderate risk, with an 83% probability of achieving a positive NPV. The financial feasibility analysis recommends renting the new warehouse in Banjarmasin. This option provides a quicker payback period, higher NPV and IRR, and positive risk assessment results. Investing in this project will enhance XYZ Company's market presence in Kalimantan, cater to the growing demand for Songkok, and achieve sustainable growth and profitability.

Comparative Analysis of Open v/s Protected Cut Flower Rose Farming in Karnataka, India

In India, the floriculture industry is the second largest in the world, trailing only China. The total area under flower crops during 2023-24 was 285,000 hectares; production of loose flowers was estimated to be 21.52 lakh metric tons, and cut-flowers were 645 metric tons. Both fresh and dried cut flowers lead floriculture exports from India. (NHB, 2023-24). Among the plethora of flowers, the rose stands out as a plant with hundreds of species and thousands of cultivars, many of which are native to Asia. These roses are not only extensively used in commercial perfumery and pharmaceuticals but also as commercial cut flower crops. In the current era of commercialization, rose cultivation has expanded to both protected and open-field methods. Therefore, this study was undertaken to analyze the Comparative Analysis of Open vs. Protected Cut Flower Rose Farming in Karnataka. The study was based on primary data collected from 40 farmers each from both the districts, namely Chikkaballapura and Bengaluru Rural. The data were analysed using cost and return analysis and capital budgeting techniques. The results obtained from this study indicated that the cultivation of roses was profitable under open and protected fields. But comparatively, the rate of return obtained from protected cultivation was higher, i.e., 54 per cent with a 1.58 B:C ratio, than open-field cultivation, i.e., 47 per cent with a 1.21 B:C ratio. Therefore, efforts should be made to educate the traditional rose farmers to adopt a better package of practices followed by protected farms and encourage them by providing cheaper institutional credit and subsidies.

A Study on Capital Budgeting Techniques and preparation of DCF Model of NVIDIA Corporation

This study delves into the application of capital budgeting techniques in Nvidia Corporation, a global leader in graphics processing units (GPUs) and artificial intelligence (AI) technologies. Through secondary data analysis sourced from various reputable sources including webpages, case studies, and annual reports, the study aims to evaluate the impact of capital budgeting techniques on investment decision-making, assess the profitability of Nvidia, calculate its Net Present Value (NPV), and provide actionable suggestions for enhancing profitability and diversifying investment decisions. Additionally, a Discounted Cash Flow (DCF) model is prepared to forecast future performance and guide strategic planning. Limitations such as incomplete information, biased sources, and limited data availability are acknowledged, yet the study offers valuable insights into the strategic financial management of a technology giant like Nvidia.

Strategic Evaluation and Economic Impact of Fibre Optic Infrastructure

Metrolink, LDA as the largest telecommunications company in Timor-Leste, is continuously investing to grow its company and serve the growing needs of its customers with a profit-oriented vision. This research aims to find out the viability of the investment plan that will be implemented at Metrolink, LDA. The investment plan is the construction of a project in Silawan-Batu Gade-Liquica-Dili that is to expand the network. With a total investment of USD 3,000,000 coming from equity at an interest rate of 9% in 2023. Capital budgeting is a process in which a company analyses a project and decides which projects will be included in its financial budget. The type of research that is conducted is descriptive research and this research will perform qualitative analysis to analyse the problems that occur. While the data is in the form of quantitative data. Evaluation of investment eligibility on the project This uses capital budgeting techniques which it uses to find out whether or not an investment proposal is eligible. With the payback period analysis tool, net present value. The two analytical tools are also used by Metrolink, LDA to measure whether the project is adequate or not. From the results of the analysis and the plan of the project Silawan-Batu Gade-Liquica-Dili. Obtained a payback period of 2 years 7 months from the target Metrolink, LDA is 5 years, Net Present Value of USD 3.358.050 of the target that is defined Metrolinks, the result is positive. It shows that the financial investment plan project is not worthy to be implemented.

Campus sustainable energy management initiatives at Goa Institute of Management

Learning outcomes The learning outcomes of this study are to identify and discuss ways in which energy consumption in a residential educational institute can be reduced by improving demand-side energy management for sustainable development; summarise the challenges that an institute faces in transitioning to a more environmentally friendly mode of operations concerning energy management; illustrate the difference between operating expense and capital expenditure methods used for solar rooftop projects from the perspective of Goa Institute of Management (GIM); and analyse different project proposals for solar rooftop power generation energy using capital budgeting techniques. Case overview/synopsis Dr Ajit Parulekar, director at GIM, was evaluating the steps taken over the past few years for sustainable energy management to understand their impact and consider ways in which to take the environmental sustainability agenda forward. One of the projects that he was considering was the rooftop solar power plant. GIM had received proposals from several different vendors and evaluated three proposals out of these. He needed to decide on the capacity of the rooftop solar power generation and the type of contract that he should get into for the implementation of the project. This case study describes the differences and highlights the advantages and disadvantages of all the mentioned models with respect to GIM. Complexity academic level This case study is suitable for post-graduate level management students, as well as for undergraduate-level finance and management students. Supplementary material Teaching notes are available for educators only. Subject code CSS4: Environmental management.

The comparative financial feasibility analysis and the environmental impacts of sugarcane-based bioethanol production in South Africa

The objective of this paper was to determine the financial feasibility and environmental implications of bioethanol production from sugarcane in South Africa. The financial feasibility objectives was achieved using two capital budgeting techniques, namely, the Net Present Value (NPV) and Benefit-Cost Ratio (BCR) under four scenarios considerations: all sugarcane is used for biofuel production (I), all sugarcane destined for the sugar export market is used to produce bioethanol, II), All sugarcane is crushed into cane juice which is then transported into the refinery (III) and IV) Export designated sugarcane is transported by farmers to the refinery in the form of a cane juice. The environmental implications were determined using the Input-output and multiplier analysis. The NPV and BCR) results indicated that it is not feasible to produce bioethanol from sugarcane without a government subsidy. The production of sugarcane-based bioethanol however had environmental benefits as it was estimated to results to an average Green House Gases (GHGs) emission reduction of 28% related to petrol, of which 84% of the GHGs emission savings was from Carbon Dioxide (CO2). For bioethanol production to be financially feasible the financial support from private investors and government is recommended in subsidising the cost of feedstock.

Capital Budgeting Implementation by Public Sector Construction Firms in Tanzania’s Housebuilding Industry: An Exploratory Study

This exploratory study investigates the implementation of capital budgeting practices (CBP) by selected public sector construction firms (PSCF) in Tanzania. This investigation seeks to assess the extent, to which such practices are used for effective investment decision-making, with a particular focus on the country’s housebuilding sector. A case study research design was adopted to collect data from five Tanzanian PSCF, serving as cases through a mix of questionnaires, interviews and document reviews. The emergent data was analysed using thematic analysis. An appreciable level of CBP implementation was observed in all the cases. The internal rate of return (IRR), net present value (NPV) and payback period (PBP) capital budgeting techniques (CBT) were observed to be mostly used by these PSCF, while sensitivity analysis was widely deployed for risk mitigation. The influence of top management in decision- making, political influence and lack of advanced software were some of the implementation challenges identified. The findings contribute to the elucidation of CBP implementation praxis in the public sector organisation context in developing countries, as it relates to the housebuilding industry in Tanzania’s unexplored context. The study proves to be a valuable resource for public sector entities in developing countries intent for facilitating effective investment decision-making about infrastructure procurement and it contributes to improving knowledge of CBP implementation, consideration of risk mitigation factors and post-project implementation audits by public sector firms.

Yatırım Projesi Değerlendirilmesinde Kullanılan Sermaye Bütçelemesi Yöntemleri: Türkiye’nin 500 Büyük Sanayi Kuruluşu Örneği

The main aim of this study is to determine the capital budgeting methods preferred by Turkey's Top 500 Industrial Enterprises when evaluating their investment projects and the usage rates of the capital budgeting techniques. Also, it is aimed to determine the relationship between the capital budgeting methods preferred by both Turkey's Top 500 Industrial Enterprises and companies whose stocks are traded in Borsa Istanbul and firm size, exports, year of establishment, financial risk, education level of managers, sector, and firm performance. The study made use of a questionnaire survey. The survey was used as the data collection method in the study and the survey questions were applied to 500 Largest Industrial Enterprises of Turkey announced by the Istanbul Chamber of Industry in 2018, in 2020. The association between the obtained data was shown using logistic regression analysis. The findings indicated that a statistically significant relationship was determined between the education level, sector and firm age in both Turkey's Top 500 Industrial Enterprises and the companies whose stocks are traded in Borsa Istanbul (Istanbul Stock Exchance), and the preferred methods. However, there is no significant relationship was found between the methods preferred by the companies in Turkey's Top 500 Industrial Enterprises and the firm size, there is a significant relationship was found between the methods preferred by the companies whose stocks are traded in Borsa Istanbul and the firm size. A significant relationship was determined between the export and the methods preferred by the companies in Turkey's Top 500 Industrial Enterprises, but a significant relationship was not found between the companies whose stocks are traded in Borsa Istanbul and their export and firm performance.

Price Identification And Financial Feasibility Study of Hydroponic Agriculture Iot Solution Launch Project at PT XYZ

Since 2015, the Internet of Things technology has grown significantly, reaching over 400 million users by 2022 in Indonesia. Recognizing the potential, PT XYZ, an innovative Indonesian telecommunications company, intends to launch an IoT solution for hydroponic agriculture. The launch project requires an initial investment of around Rp 500 million. Given that amount, PT XYZ aims to determine the selling price using a value-based pricing strategy and assess the project's financial feasibility and risks before proceeding. Primary and secondary data will be utilized in this research to determine the customer's willingness to pay (WTP), Capital budgeting cash flow, which includes the hypothetical price of IoT, calculating the weighted average cost of capital (WACC), free cash flow to the firm (FCFF), and terminal value. The study used various capital budgeting techniques, such as net present value (NPV), profitability index, payback period, internal rate of return (IRR), and Excel's goal seek feature, to determine the IoT solution's pricing. A risk analysis using sensitivity and Monte Carlo simulations have conducted. The research finds that the present value of benefits, or WTP, for the IoT solution, is Rp 90,708,238. Considering PT XYZ's targeted internal rate of return of 20%, the determined selling price is Rp 20,120,408, which lies within the customer's WTP, making the project feasible. Capital budgeting techniques show a payback period of 4.08 years, an NPV of Rp 3,424,935,505, and a profitability index of 8.21 over five years, indicating positive outcomes. However, the sensitivity analysis reveals that a change in product price, cost of goods sold, and salary expenses will significantly impact the NPV, resulting in a 12.69% risk, with profitability remaining high at 87.31%. In conclusion, PT XYZ's hydroponic agriculture IoT solution launch project is considered feasible, considering potential risks and mitigation strategies.

Challenges and Opportunities in Adopting Capital Budgeting Practices

This study aims to examine the obstacles and potential advantages that small and medium firms encounter when using capital budgeting techniques. The present study employs a design that involves doing a comprehensive literature analysis to analyze various papers and prior research. The present study reveals a number of problems encountered by small and medium firms in the process of adopting capital budgeting techniques. One of the most significant obstacles that has a profound impact is the deficiency in understanding capital budgeting. The implementation of capital budgeting procedures is infrequently observed among small and medium firms, resulting in limited impact. Despite the potential benefits it offers to the development of small and medium firms, capital budgeting facilitates crucial decision-making processes pertaining to investments, long-term planning, and investment assessment for business owners. The practical implication of this study suggests that owners of small and medium firms should consider enhancing their financial knowledge or seeking professional experience in the areas of finance and management.

Capital Budgeting and Financial Investment Appraisal: A Review of Archival Literature

Abstract: Universally, fund raising issues and capital utilitization have been the heart-beat of all financial managers both in the private and public sector. However, profitable utilization of scarce financial resources by various sectors has become more important as cost of fund raised daily has become increasingly astronomical. Hence, the financial manager must do all that is possible to generate returns that will not only be sufficient to meet the cost of funds but also enough to satisfy the wealth maximization objective of the firm. Raising finance for corporate bodies thus becomes important and of highest import. Thus, the aim of this study is to carry out a detailed review of archival literature on the roles of financial management in capital investment appraisal. In this study, the authors intend to review archival literatures to find out the contributions of financial managers in making good financial decisions and to reveal the impact of capital budgeting techniques on financial projects. This simply will provide the reader full detail information about how the necessary data/materials used in the study was collected. The data used for the research were collected by means of vital and relevant data from secondary sources through the review of some related and available documents such as textbooks, term papers, and business publications like magazines, journals, newspaper, periodicals, published and unpublished works and statistical records. This study found that in other to achieve the desired goals of financial managers in effective decision making senior management of any organization must bear in mind that observation of the doctrine of capital investment appraisal must be obeyed and properly executed in the organization.

Green Economy Evaluation of EOR Projects in Borneo Field: Case of CO2 Injection vs Chemical Injection

PT Borneo Petroleum Company (BPC) as one of the biggest oil and gas company in Indonesia is planning to perform Enhanced Oil Recovery in Borneo Field. It is considering performing chemical injection (CEOR) or CO2 injection. As CO2 injection requires bigger capital investment than CEOR, it becomes less favorable. However, as the campaign for Net Zero Emissions surges and the planning from the government to implement the carbon tax in Indonesia, the company must revisit the economic evaluation of the projects by introducing carbon tax in the calculation. This research uses capital budgeting techniques in evaluating the projects. It is also used to evaluate the impact of green economy implementation to the project valuation. It needs to show whether the projects are feasible with conventional capital budgeting and with green budgeting. The expected finding is that the economic value of CO2 injection will improve significantly and will make it more attractive than CEOR. This study assumes that the carbon tax applied in Indonesia is at US $ 5.25 per ton CO2-equivalent. The CO2 injected is constant at 8.5 MSm3/d. It is also assumed that BPC is adopting the same capital structure as its parent company. The emissions associated with the project is calculated as the function of production rates. The project’s profitability is based on the Net Present Value, Internal Rate of Return, Profitability Index, and Payback Period. Sensitivity analysis is also performed to explore the variables which give significant impact to the project valuation. Monte Carlo simulation is also performed to test all possible scenarios and its impact to the NPV. It is found that the impact of carbon tax is not significant to the economic value, in contrary the potential for additional incentive in terms of Result Based Payment for Carbon Capture Utilization and Storage has significant impact to the economic value of the project. The result is used to make decision on which EOR method to be applied which create more value to the company in terms of economic and sustainability.

Solar Energy Investment Valuation With Intuitionistic Fuzzy Trinomial Lattice Real Option Model

Under the uncertain and the flexibility required conditions, the conventional capital budgeting techniques are insufficient to decide the most feasible investment due to their static nature. Classical real option valuation techniques have been used for various investment options such as deferment and abandonment. Although these techniques help to evaluate the projects in uncertain environments, they still follow the static, certain Boolean logic assumptions. Therefore, further improvement in the real option valuation has been introduced with the usage of fuzzy logic. Fuzzy logic is applied by binomial and Black–Scholes real option valuation methods up to date, but not with the trinomial lattice. Moreover, Types-1 and 2 fuzzy numbers are used; however, the intuitionistic fuzzy numbers are not analyzed in detail in the real option valuation. In this article, we propose an intuitionistic fuzzy trinomial lattice real option valuation model for a solar energy investment project. While valuing the deferment option, expert opinions, two different volatility methods, and a tailor-made electricity price-forecasting model are used. According to our results, the deferment option is valuable and delaying the start of the project provides a much higher expanded net present value than an immediate start. The contribution of this article is that the uncertainty in the real option valuation is modeled from a broader perspective with intuitionistic fuzzy numbers by taking the hesitancy of the decision-maker and the market into account. Consequently, the proposed method would increase the accuracy of the real option valuation in uncertain environments such as renewable energy sector.

Revenue Acceleration by Temporary Rental Pump Option in Plato Platform: Case Study in PT. Prominent Petro

This article explores the financial analysis and risk assessment of a company called PT. Prominent Petro, which is considering accelerating production in one of its production facilities, Plato Platform, by installing a temporary rental pump while waiting for the completion of a new permanent pump installation. The financial analysis used Capital Budgeting Technique with Discounted Cash Flow method. The risk analysis was performed by using Sensitivity Analysis and Monte Carlo analysis covering two timeframe scenarios of permanent pump installation, On Time Scenario and Delay Scenario. In On-Time Scenario, the results of the analysis showed that the temporary rental pump option would provide higher financial returns to the company, with an estimated NPV of 6.998 million USD, 7.7% higher than the baseline (no rental) option. Sensitivity analysis revealed that the most significant factor affecting the company's financial return was the realization of gas production. Monte Carlo analysis demonstrated that both Rental and No Rental investment proposals were low-risk and robust, with the rental option having higher risk and return. In Delay Scenario, without temporary rental pump, project financial return will decrease from 6.496 million USD to 5.907 million USD, with the discounted payback period delayed from 1.17 years to 1.80 years. However, the utilization of temporary rental pump option either for six- or twelve-months duration will improve the financial return to 6.4 million USD, similar with financial return of baseline option without delay. Furthermore, a decision tree analysis was developed to estimate the expected monetary value for the company. The analysis concluded that the rental pump option provided a better financial return, with an expected monetary value of $6.484 Million. Overall, the findings suggest that the temporary rental pump option give better financial result for the company.

Capital Budgeting Analysis in Assess the Feasibility of Vaname Shrimp Cultivation Investment

Vannamei shrimp cultivation business is one type of business that has the potential to be profitable considering the high level of demand every year and of course also requires a fairly large investment. A true investment is an investment made through a feasibility analysis process to determine whether the business activity to be carried out is profitable or harmful. Good investment decisions will result in good business even though the financial decisions taken are not good, on the contrary the wrong investment decisions will be the wrong decisions that will be detrimental even with the best financial policies. The purpose of this study is to determine the feasibility of investment in vaname shrimp farming located in South Lampung Regency, both traditionally, semi-intensively and intensively. This study uses primary data and secondary data. Primary data is obtained from the results of field surveys, while secondary data is obtained from related agencies. The analytical method used in this research is the capital budgeting technique with the approach of NPV, IRR, Gross B/C, and PI. The results of the study using the four methods of capital budgeting above show that investment activities in vaname shrimp farming, both traditional, semi-intensive and intensive, are feasible. The most feasible and profitable method of vaname shrimp cultivation is intensive, which of course also requires the largest investment.

Pengaruh Kebijakan Peraturan Suatu Negara Dalam Implementasi Multinasional Capital Budgeting


 This journal examines the Influence of a Country's Regulatory Policy in the Implementation of Multinational Capital Budgeting with the aim that writers and readers know what influence a state regulation can have in the implementation of multinational capital budgeting. In compiling this journal the author uses descriptive qualitative research methods where research references are taken from written notes, typed interview transcripts, and video or audio recordings containing related information. Meanwhile, the data collection technique used by the researcher is by using various references from previous studies, books, and the internet. The main result of this study is the evidence that capital budgeting for domestic companies in Kenya differs significantly from the structure adopted by multinational companies operating in the country. In this journal, the authors argue that differences in capital budgeting border on capital-intensive and host country laws. Due to different operating policies around the world, subsidiaries of multinational companies adopt unique capital budgeting techniques to reflect the regulatory policies of the host country. In addition, the net present value guides how MNCs determine their capital budgets as each business entity's objective is to remain afloat and competitive.
 Keyword : Policies, Regulations, Multinational, Capital Budgeting

THE IMPACT OF CAPITAL BUDGETING PRACTICES ON FINANCIAL PERFORMANCE OF LEBANESE BANKS

Individuals participating in capital budgeting choices are presumed to act rationally while making investments. However, human irrationality may have an impact on actual capital budgeting choices. The primary purpose of this research was to analyze how capital budgeting choices affected the bottom lines of Lebanese financial institutions. The sample for the research consisted of nine different banks in Lebanon. Data was gathered using both original sources and secondary resources. The data covered the years 2015 till 2020. The listed banks' financial statements served as a secondary data source, while questionnaires were used to gather primary data. For the purpose of analysis, we used MS Excel and SPSS. This research shows that capital budgeting methods are used by banks in Lebanon while making investments. In terms of capital planning, net present value was the most used metric. After NPV and IRR came PBP and ARR, with ARR being used the least. Banking institutions in Lebanon are urged to provide their staff with training in capital budgeting techniques after reading this paper. Prioritize initiatives based on their potential for success while you look for external financing. Consider acquiring a blend of conventional and contemporary capital budgeting methods to assist the company decrease the risks of project failure and establish a dedicated department to handle the identification of potential projects and the selection of suitable capital budgeting tools mix.

A Comparative Analysis of the Evaluation Techniques of Capital Budgeting in E-Commerce

E-commerce has grown exponentially as the digital revolution reaches its peak. Most business transactions nowadays have the option of being done electronically or online through the Internet. In this growing field of e-commerce and with the increasing number of potential investments, intensive evaluation of a profitable proposal is essentially necessary in order to increase the value of the firm and avoid losses if possible. This paper aims to analyze the different e-commerce capital budgeting evaluation techniques by critiquing their formulas and identifying the corresponding advantages and disadvantages of using them. An introduction to capital budgeting and the key processes involved will also be presented.