Capital budgeting: the Romanian university professors' points of view (original) (raw)

Capital Budgeting: the Romanian Credit Analysts’ Points of View

2011

This study aims to disclose the methods and instruments used by the credit analysts in the most important Romanian banks regarding capital budgeting. It can be noticed that the dominant standpoint converges to the recommendations of the main reference works in corporate finance. Hence, indicators like profitability index, net present value or internal rate of return are preferred by the most part of the credit analysts. Among the techniques of risk quantification, the sensitivity analysis is the most commonly used method by Romanian creditors. About the discount rate used in investment valuation, the main part of the respondents recommends the rate of return for similar projects in the sector.

Capital Budgeting and Cost of Capital: A Unique Formulation of the Main Investment Decision Methods

SSRN Electronic Journal, 2000

Analysts can use various methods to value an investment project including the standard weighted average cost of capital (WACC) method, the Arditti-Levy method, the equity residual method, and the Adjusted Present Value. We propose a unique formulation from which these methods can be derived. This formulation permits demonstrating the equality of their net present values and the consistency of their internal rates of return in a straightforward manner when a predetermined debt ratio is targeted. We also discuss possible pitfalls and adjustments when considering a project's financing mix.

Capital Budgeting and Cost Evaluation Techniques: A Conceptual Analysis

International Journal of Science & Research , 2018

Capital budgeting decisions are crucial to a firm's success for several reasons. Firstly, capital expenditures typically require large outlays of funds. Secondly, firms must ascertain the best way to raise and repay these funds. Thirdly, most capital budgeting decisions require a long-term commitment. Finally, the timing of capital budgeting decisions is important. When large amounts of funds are raised, firms must pay close attention to the financial markets because the cost of capital is directly related to the current interest rate or investor?s expected rate of return. This Published paper focuses on advances in Capital Budgeting Techniques theory through and practical. Also its impact in the decisions of the investment while focusing on evaluation practices such as risk and uncertainty but not considering the numerically appraising of the principles of investment. The sensitivity analysis of capital budgeting depends on a number of uncertain independent variables which may have some impacted on the investment results. The positive value of the investment appraisal is value added to the firm, and it can be enhanced return for the shareholders. The success of the project is assessed on stage post completion audit with proper stage by stage completed.

Techniques For Managing Projects Risk In Capital Budgeting Process

UTMS Journal of Economics, 2010

The paper examines capital budgeting process and techniques of risk analysis in the process of selecting optimal project. Corporate manager in process of capital budgeting uses numerous techniques some of them are based on intuition and experience of manager, and some of them are analytic based on sensitive, scenario, decision tree and Monte Carlo method. All methods are used to determinate and to predict risk influence on the projects. Article deals with analytical techniques and real problems that can arise in capital budgeting process. Trough case study in article we analyzed risks that may emerge from different techniques. Conclusion that emerges from analyzing different methods of risk techniques is that only with right combination of these techniques corporate manager could decide correctly to choose optimal capital project.

Capital Budgeting In Practice: Issues Not Addressed In Finance Texts

Journal of Business Case Studies (JBCS), 2011

Undergraduate and graduate finance textbooks present the capital budgeting process as a formal quantitative process. Absent from this model is any meaningful discussion of the role of qualitative factors in long-term investment analysis. Our findings reveal that for most firms, the conventional textbook approach to capital budgeting is not practiced in the business world. We find that qualitative factors play a critical, and in many cases, a dominant role in the capital budgeting process. The purpose of this paper is to help instructors provide guidance for students in understanding the way quantitative and qualitative capital budgeting tools are actually used in practice. This knowledge will help students use these skills much more effectively and allow them to successfully integrate themselves into a companys capital budgeting process. Furthermore, this understanding will help the student bridge the gap between education and practice.

Capital Budgeting Techniques: Estimation of Internal Rate of Returns

Asian Journal of Economics, Business and Accounting

The enormity of costs associated with long-term assets and the length of exposure to risk of such investments makes it essential to properly evaluate capital budgeting decisions before embarking on them. The estimation of cash flows of uncertain future period itself is problematic and to add a complex technique of project evaluation that will require trial and error could be frustrating. This study is to simplify the estimation of Internal Rate of Return (IRR) without going through the rigours of trial and error process. This study is a method article on the estimation of IRR. The study allows the estimation of IRR even when net present value at two levels are positive or the two are negative instead of the use of interpolation. Investments analysists were advised to properly evaluate projects so that investors will source for funds where the interest rate is lower than the projects’ IRR.

Analysis of Using Risk and Capital Budgeting for Investment Decision Making in SINI Company

The International Journal of Business & Management, 2020

This research focuses on the SINI Company. SINI Company is a device tracker technology-driven startup company. SINI Device Tracker is proposed to customers that are travelers and entrepreneurs who are often losing their products. SINI came up with a market solution that is a device tracker linked by application to the smartphone. The app is connected to the device now already out for Android users, and SINI is currently developing the application for iOS users. Currently, SINI has invested a high amount of investment in research and development for products. According to the paper report, more than 36 percent of business companies use a quantitative risk assessment, only 4 percent do not measure risk, and the remaining 60 percent only analyze risk subjectively (Schall, Sundem, & Geijsbeek, Survey and Analysis of Capital Budgeting Methods, 1978). The paper also examines the findings of such surveys to determine whether the risk present in a company's environment contributes to the use of different methods of capital budgeting (Schall & Sundem, Capital Budgeting Methods and Risk: A Further Analysis, 1986). Analysis of capital budgeting is a method of refining the knowledge to generate the most relevant considerations for a financial planner in charge of selecting investment opportunities (Durand, 1986). Capital budgeting is a fundamental and used as a method for organizing, managing, and allocating scarce resources to competing demands everywhere. Capital budgeting is an integral part of financial planning and decision-making as capital budgeting resources contribute to a better decision and can support the selection of particular investments among competitive alternatives (Kengatharan, 2016) 1.1. Problem Statement Investment projects are subject to different types of risks that can affect the beneficiary's expected performance. The influences that come from the external environment, as well as the endogenous factors unique to the investment objective's organizational and functional structure, may have a different manifestation in time than initially anticipated, and thus the more significant the variations found, the higher the project's risk of failing to make sure that the intended outcomes are achieved (Burja & Burja, 2009) SINI Company is currently at the development stage. Given the fact, SINI is projecting a high amount of Investment Projection and those investments invested without risk analysis. There's a possibility that SINI has a high-risk value, and it can be a loss for the company. Therefore, SINI Company needs to analyze capital budgeting to measure and guide SINI Company's Investment Decisions to define the financial profitability of any investment project. SINI needs to have guidelines for considering further investment based on an analysis.

Capital Budgeting Practice of Thai Firms

2015

This paper examines the capital budgeting practice of Thai firms and the relationships between capital budgeting techniques and the firm size, length of operation and type of firms. The results indicated that most Thai firms used capital budgeting techniques for the analysis of investment projects (74.1%) and more than half (51.7%) of total corporate capital investment expenditures were screened by capital budgeting techniques. Discounted-cash-flow techniques were used by the majority of the firms with Internal Rate of Return (IRR) the most used evaluate techniques. Moreover, risk is quantified on individual project basis in assessing risk in investment decisions. Shortening the desired payback period was used most among the risk analysis techniques and the most likely scenario received most attention in the financial justification in relation to risk.