Using Capital Budgeting Technique of Net Present Value (NPV) to Determine the Benefit of Training Investment

Evaluation of Investment Projects: A Case from Turkish Cement Sector

International Conference on Eurasian Economies 2016 ◽

10.36880/c07.01587 ◽

2016 ◽

Author(s):

Miyase Karabulut ◽

Sıtkı Sönmezer ◽

Vedat Zeki Yenen ◽

Zeynep Emir

Keyword(s):

Qualitative Research ◽

Net Present Value ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Projects ◽

Preliminary Results ◽

Internal Rate ◽

Exclusive Or

Capital budgeting is crucial for firms that have projects to evaluate especially when the projects are mutually exclusive or financing is scarce. The aim of the study is to determining the most widely used methodologies in capital budgeting decisions and their effectiveness. A qualitative research will provide cement sector specific examples in assessing industry projects and compares the methods of Net Present Value, İnternal rate of Return, Pay-back period, discounted pay-back period and MIRR. Each method is briefly discussed and its drawbacks and advantages are mentioned in detail. Other sectors are also examined in terms of capital budgeting. Our preliminary results indicate that net present value method dominates capital budgeting decisions in the sectors under study.

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ANALISIS PENGANGGARAN MODAL PADA PT ULTRAJAYA MILK INDUSTRY Tbk. TAHUN 2013-2017

Jemasi: Jurnal Ekonomi Manajemen dan Akuntansi ◽

10.35449/jemasi.v14i2.11 ◽

2018 ◽

Vol 14 (2) ◽

pp. 101-110

Author(s):

Eka Lusvita Wulandari ◽

Lily Rahmawati Harahap

Keyword(s):

Opportunity Cost ◽

Net Present Value ◽

Average Rate ◽

Capital Budgeting ◽

Payback Period ◽

Investment Analysis ◽

Present Value ◽

Investment Opportunities ◽

Milk Industry ◽

Real Losses

Capital budgeting in practice is intended to conduct an investment analysis of some available investment alternatives, and then determine or choose the most profitable investment. Inappropriateness in determining investment options will result in losses of either real losses or losses due to loss of opportunity to gain an opportunity cost that can actually be realized. The investment analysis will select the available investment opportunities, so that investment can be selected that will provide the greatest benefit of every dollar invested. Capital budgeting techniques can be analyzed by appraisal method of investment as follows: Average Rate of Return, Payback Period , Net Present Value, and Profitability Index.

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Reinvestment Bias When Analyzing Mutually Exclusive Assets

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v2i3.6572 ◽

2011 ◽

Vol 2 (3) ◽

pp. 71

Author(s):

Robert J. Sweeney

Keyword(s):

Net Present Value ◽

Capital Budgeting ◽

Cash Flows ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate ◽

Current Period ◽

The Cost ◽

Flows Over Time

Capital budgeting decisions generally involve the commitment of resources in the current period to secure positive cash flows over time that generate a rate of return in excess of the cost of the funds invested. The most common techniques used to perform this analysis are the Net Present Value (NPV) and the Internal Rate of Return (IRR).Conceptually, these two techniques are substitutable; i.e. the resulting decision from a NPV analysis is identical to the decision from an IRR analysis. In practice, however, the NPV and the IRR can, on occasion, produce conflicting decisions. Specifically, when analyzing mutually exclusive assets the Net Present Value can support one asset while the Internal Rate of Return supports the other. The purpose of this paper is twofold; first, to highlight structural deficiencies in the conventional application of the NPV and the IRR, and second, to demonstrate a procedure to correct for these structural errors.

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The Net Present Value of Future Investment Opportunities: Its Impact on Shareholder Wealth and Implications for Capital Budgeting Theory

Financial Management ◽

10.2307/3665895 ◽

1989 ◽

Vol 18 (2) ◽

pp. 85 ◽

Cited By ~ 17

Author(s):

John C. Woods ◽

Maury R. Randall

Keyword(s):

Net Present Value ◽

Capital Budgeting ◽

Shareholder Wealth ◽

Present Value ◽

Investment Opportunities

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Three Corporate Finance Practices in Pakistan: A Review of Previous Studies and Way Forward

Journal of Finance and Accounting Research ◽

10.32350/jfar.0301.04 ◽

2021 ◽

Vol 3 (1) ◽

pp. 61-84

Author(s):

Umar Farooq ◽

Bilal Haider Subhani

Keyword(s):

Capital Structure ◽

Corporate Finance ◽

Net Present Value ◽

Capital Budgeting ◽

Payout Policy ◽

Debt Financing ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Dividend Payout

This study reviews the empirical studies arranged on Pakistani capital market and specifies the pattern of three corporate finance practices. The subject of corporate finance discusses the various activities performed at firm level such as capital budgeting, capital structure, and dividend payout policy. The capital budgeting technique consists of six methods i.e., net present value, discounted cash flow, payback period, and internal rate of return etc. but Pakistani firms often interested in net present value and internal rate of return for capital investment evaluation. Similarly, the capital structure decision carries the debate on two options of financing i.e., debt financing and equity financing but literature shows that the Pakistani firms generally follow the pecking order theory and prefer more debt financing. Similarly, as for concern dividend payout policy, literature discusses the different theories and determinants but still unable to generalize the dividend payout trend specifically in Pakistani context. Corporate managers and policymakers can use the conclusion for strategic purposes.

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ANALISIS KELAYAKAN USAHA COKELAT PRALINE DENGAN METODE CAPITAL BUDGETING DI TOKO KUE BAPER COKELAT PAMULANG

Teknologi : Jurnal Ilmiah dan Teknologi ◽

10.32493/teknologi.v2i2.7895 ◽

2020 ◽

Vol 2 (2) ◽

pp. 73

Author(s):

Aod Abdul Jawad

Keyword(s):

Net Present Value ◽

Cost Of Capital ◽

Capital Budgeting ◽

Present Value

Toko Kue Baper Cokelat merupakan salah satu bentuk usaha perorangan yang salah satu produk andalannya adalah cokelat praline. Pada penelitian ini penulis membahas mengenai kelayakan usaha cokelat praline pada aspek pemasaran, teknis dan keuangan. Penulis menganalisa data keuangan toko dalam periode Januari 2018 sampai dengan Desember 2018. Metode yang digunakan adalah Capital Budgeting. Dari hasil analisa dalam periode Januari sampai dengan Desember 2018, didapat hasil usaha cokelat praline pantas dijalankan. Mengacu pada perhitungan Tingkat Pengembalian rata-rata (ARR) didapatkan nilai 132,09% lebih besar daripada tingkat cost of capital 7,37%, Net Present Value (NPV) positif bernilai Rp 216,643,572.14, Profitability Index diperoleh nilai 3,13 sesuai persyaratan harus lebih dari 1 ,Tingkat pengembalian Investasi (IRR) menghasilkan nilai 23,06% lebih besar dari tingkat suku bunga terendah 5,75%, Periode Pengembalian Investasi didapatkan hasil pengembalian dalam jangka waktu 3 tahun 2 bulan 13 hari.

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Computing Capital Budgeting for Banking Sector

Psychology and Education Journal ◽

10.17762/pae.v58i2.3183 ◽

2021 ◽

Vol 58 (2) ◽

pp. 6502-6508

Author(s):

Sushain Koul, Dr. Parag Ravikant Kaveri

Keyword(s):

Financial Management ◽

Banking Sector ◽

Net Present Value ◽

Average Rate ◽

Capital Budgeting ◽

Rate Of Return ◽

Present Value ◽

Banking Organization ◽

Long Run ◽

Selection Of

Perhaps the most difficult hurdle which companies come across is the selection of the project which is beneficial to the organization in the long-run and also increases the present value of the shareholders. This is where Capital Budgeting comes into play. Capital Budgeting is one of the most important areas of financial management. This paper gives an overview of what capital budgeting is, what different types of techniques comes under capital budgeting and how to represent capital budgeting technique algorithmically. In this paper we also throw some light on what the results of various capital budgeting techniques will be if any banking organization follows these techniques and compare those results. These techniques namely as Payback Period (PP), Average Rate of Return (ARR), Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR) are used to evaluate projects.

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Risk Manage Capital Investment Decisions: A Lease vs. Purchase Illustration

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i3.1031 ◽

2011 ◽

Vol 25 (3) ◽

Author(s):

Thomas L. Zeller ◽

Brian B. Stanko

Keyword(s):

Capital Investment ◽

Net Present Value ◽

Investment Decisions ◽

Capital Budgeting ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Wealth Creation ◽

Font Size ◽

Present Value ◽

Internal Rate

This paper demonstrates how to build risk into capital investment decisions.  We illustrate how to combine distribution theory, technology, and a business professional’s skills and insight into a capital investment analysis.  In addition, we show how management can approximate the risk of each cash flow estimate and display the overall capital investment results.  This framework is extended by showing how a mutually exclusive decision can be improved, using a lease versus purchase example.<a style="mso-footnote-id: ftn1;" name="_ftnref1" href="http://journals.cluteonline.com/index.php/JABR/author/saveSubmit/#_ftn1">[1]</a>  An Excel template is readily available from the authors allowing a hands-on application of the framework presented in this paper.  In addition, this paper positions the reader to comfortably use more advanced analytics, such as Monte Carlo simulation, a tool that is readily available in commercial software applications.<div style="mso-element: footnote-list;"> <hr size="1" /><div id="ftn1" style="mso-element: footnote;">This paper focuses on the application of net present value.  The advantage of using net present value in a capital budgeting decision is that it shows the potential stakeholder wealth creation and wealth destruction.  An internal rate of return analysis is intentionally left out of this paper.  According to Brealey, Myers and Allen, Principles of Corporate Finance, New York, NY: McGraw-Hill/Irwin 2006, pp. 91-99, internal rate of return should not be used to evaluate mutually exclusive capital investments.  </div></div>

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The Extent of Using and Trusting Capital Budgeting Methods in Projects Appraisal in Palestinian Corporations

Modern Applied Science ◽

10.5539/mas.v12n6p151 ◽

2018 ◽

Vol 12 (6) ◽

pp. 151

Author(s):

Ahmad N. H. Anabtawi

Keyword(s):

Net Present Value ◽

Capital Budgeting ◽

Cash Flows ◽

Payback Period ◽

The Other ◽

Present Value ◽

Internal Rate ◽

Public Corporations ◽

Rate Of Returns ◽

Accounting Rate

This research paper aims to find the degree of the use as well as the trust of the Net Present Value (NPV), Payback Period (PBP), Internal Rate of Returns (IRR) and Accounting Rate of Returns (ARR) as a key capital budgeting method. The research conducted on the listed corporations in Palestine which are 48 company. A questionnaire distributed on 77 financial and project/operations managers in these corporations with 67 responds. The result shows that both discounted and non-discounted cash flows methods are used and trusted by Palestine public corporations. However, on the other hand, the above four methods are volatile in term of use and trust. The most used and trusted capital budgeting method is the Payback period (PBP). This followed by the Net Present Value (NPV). Accounting Rate of Retunes (ARR) becomes third. Thus the least used and trusted method is the Internal Rate of Returns (IRR).

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A New Approach to Capital Budgeting in Closely-Held Firms and Small Firms

American Journal of Small Business ◽

10.1177/104225878100500404 ◽

1981 ◽

Vol 5 (4) ◽

pp. 30-35 ◽

Cited By ~ 1

Author(s):

Thomas H. McInish ◽

Ronald J. Kudla

Keyword(s):

Small Firms ◽

Net Present Value ◽

Cost Of Capital ◽

Weighted Average ◽

Capital Budgeting ◽

Cash Flows ◽

Separation Principle ◽

Discount Rates ◽

Present Value ◽

Investor Returns

The traditional application of the net present value method in capital budgeting involves the use of market derived discount rates such as the cost of capital. Justification of these discount rates stems from the separation principle that states that investment decisions can be made independent of shareholders' tastes and preferences. The purpose of this paper is to show that the separation principle does not hold for closely-held firms and small firms, and, accordingly, market-derived discount rates are inappropriate. Two capital budgeting techniques which are appropriate for these firms are presented. Accept/reject decisions for capital budgeting projects are often made using a technique known as “net present value” (NPV).1 Using the NPV method, acceptable projects are those for which the project's cost is less than the present value of the project's cash flows discounted at the firm's cost of capital; in other words, acceptable projects have a positive NPV. The firm's cost of capital is usually taken to be the weighted average of the firm's cost of equity and debt as measured by investor returns in the capital markets. Justification for use of a discount rate, determined by reference to market-wide investor returns, is based on “the separation principle” which asserts that corporations can make capital budgeting decisions independently of their shareholders' views.2 But because a critical assumption of the separation principle is that shares are readily marketable, it is likely that the separation principle and, hence, market-determined discount rates are inappropriate for closely-held firms and small firms.3 In this paper, we discuss two capital budgeting approaches which are applicable to firms whose shares are not readily marketable. This paper is divided into five sections. First, we discuss the traditional net present value approach to capital budgeting and, then, we indicate in detail, why it may not be suitable for use by closely-held firms and small firms. In the third and fourth sections, we explain two capital budgeting techniques which may be appropriate for use by these firms. Finally, we summarize our conclusions.

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