An analysis of capital budgeting methods, the cost of capital and decision-makers in listed South African firms

This study’s purpose was to link the length of decision-makers’ employment in a firm and their academic qualifications to their choice of capital budgeting methods and of cost of capital techniques. The results show that the net present value (NPV) is more popular than the internal rate of return (IRR) as a capital budgeting technique. Also, irrespective of how long respondents have been employed by a company, they all use a discount rate. However, there is a significant tendency among respondents with postgraduate qualifications to prefer the NPV as a capital budgeting technique. Thus, in South Africa, academic qualifications do play a role in decision-makers’ capital budgeting practices.

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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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B. ANALISA KELAYAKAN BISNIS PADA USAHA SWEETIN

Inovasi Manajemen dan Kebijakan Publik ◽

10.54980/imkp.v4i1.115 ◽

2021 ◽

Vol 4 (1) ◽

pp. 11

Author(s):

Vivi Indah Yani ◽

Rachmat Mustofa Pratama ◽

Izza Islami ◽

Iman Supriadi

Keyword(s):

Net Present Value ◽

Cost Of Capital ◽

Payback Period ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Internal Rate ◽

The Cost ◽

Business Study

Abstrak Tujuan dari penelitian ini adalah untuk menganalisis dan mendeskripsikan studi kelayakan bisnis yang dilakukan pada Kewirausahaan “Sweetin” yaitu usaha yang baru dirintis di Surabaya dalam bidang makanan (dessert). Penelitian ini menggunakan metode Net Present Value (NPV), Internal Rate of Return (IRR) dan Payback Period (PP). Hasil yang diperoleh dalam penelitian ini yaitu nilai NPV sebesar Rp. 1.910.819 > dari nol. Nilai IRR sebesar 110% > dari cost of capital 10%. Dan PP 1 bulan. Hal ini berarti kewirausahaan Sweetin ini menunjukkan bahwa secara non-finansial dan finansial layak untuk dijalankan. Kata kunci: Kelayakan Usaha, Non-Finansial, Finansial Abstract The purpose of this research is to analyze and describe the business study conducted on “Sweetin” Entrepreneurship, a business that has just been pioneered in Surabaya in the field of food (dessert). This study uses the method of Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period (PP). The results obtained in this study are the NPV value of Rp. 1,910,819> from zero. The IRR value is 110%> 10% of the cost of capital. And 1month PP. This means that Sweetin's entrepreneurship shows that it is non-financially and financially feasible to run. Keywords: Business Feasibility, Non-financial, Financial

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An investment analysis of developing a new oil well in the prevailing economic downturn in the petroleum sector of Nigerian economy

Scientia Africana ◽

10.4314/sa.v20i1.3 ◽

2021 ◽

Vol 20 (1) ◽

pp. 31-48

Author(s):

J.I. Nwosu ◽

A. Aliyu ◽

D. Moses

Keyword(s):

Net Present Value ◽

Cost Of Capital ◽

Oil Price ◽

Oil Well ◽

Investment Climate ◽

Internal Rate Of Return ◽

Present Value ◽

Oil Sector ◽

Petroleum Sector ◽

The Cost

From 2017 to year 2020 (except for a gradual rise in 2018), the price per barrel of oil has been on the decline, thereby slowing down investment in the petroleum sector of Nigerian economy. This dwindling oil price creates an impelling need to investigate the viability or otherwise of investing in this sector. The net present value (NPV) and internal rate of return (IRR) are two major indicators used to assess the viability of investing in projects. In this paper the two indicators have been used to assess the viability of investing in the oil sector of Nigerian economy. Analysis shows that given the cost of drainage per barrel of oil at US$25, a 40% royalty payment, an overall 10% taxation on profit, and price per barrel of oil at US$40, the net present value of a new oil well will be negative while the cost of capital will be higher than return on investment. However the break-even point occurs at US$42 price per barrel, yielding an internal rate of return equal to cost of capital. The conclusion is that the investment climate of the Nigerian oil sector is currently gloomy. Our analysis also shows that the investment climate can be improved by applying a dynamic royalty system whereby the royalty payable tothe Federal Government is reduced when the oil price declines, and increased when the oil price rises.

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Capital budgeting practices used by selected listed South African firms

South African Journal of Economic and Management Sciences ◽

10.4102/sajems.v13i1.200 ◽

2011 ◽

Vol 13 (1) ◽

pp. 85-97 ◽

Cited By ~ 16

Author(s):

John Hall ◽

Solly Millard

Keyword(s):

South African ◽

Net Present Value ◽

Capital Budgeting ◽

Cash Flows ◽

Rate Of Return ◽

Internal Rate Of Return ◽

Present Value ◽

Industrial Firms ◽

Budgeting Process ◽

Local Research

This article investigates the application of capital budgeting techniques and the incorporation of risk into the capital budgeting process among a sample of South African industrial firms listed on the JSE Securities Exchange for at least ten years. Previous international and local research on this topic indicated a preference for the internal rate of return (IRR) as a capital budgeting method over the net present value (NPV), and that risk incorporation was relatively rarely incorporated into the capital budgeting process. The results of this study indicate that the NPV is just as popular as, and sometimes more so than, the IRR. Furthermore, compared to previous studies, risk is incorporated into evaluating capital budgeting projects more often. Sensitivity analysis is the most popular method, but adjustments to the cash flows and discount rate are becoming more popular. During the last decade the use of non-financial criteria to accept or reject a project has also increased in South Africa.

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Studi Kelayakan Ekonomis Rencana Pembangunan Pelabuhan Sungai Liong Desa Berancah Kabupaten Bengkalis

EKONOMIS Journal of Economics and Business ◽

10.33087/ekonomis.v3i2.74 ◽

2019 ◽

Vol 3 (2) ◽

pp. 146

Author(s):

Nur Rahmani ◽

Akmal Lazuardy

Keyword(s):

Net Present Value ◽

Payback Period ◽

Economic Feasibility ◽

Rate Of Return ◽

Cost Ratio ◽

Internal Rate Of Return ◽

Benefit Analysis ◽

Present Value ◽

The Government ◽

The Cost

The fish shelter port (TPI) is a need that needs to be prepared by local village officials and the government for every coastal village in Bengkalis Regency. This research was conducted in the Berancah village of Bantan District. The analysis in this study describes the economic feasibility mathematically for the construction of a fish storage port (TPI) by calculating the cost ratio (B / C ratio) benefit analysis, payback period (PP), net present value (NPV), and internal rate of return ( IRR). The results obtained from the NPV value (3,661,267,645), BCR value (0.943), IRR value of 10.01%, and PP are in the period of 30 years. Taken as a whole by standardizing the calculations, it can be concluded that the planned construction of a fish shelter in Berancah village is considered not economically feasible, but economic analysis is not merely a benchmark for feasibility, reviewed for the future many benefits will be received by the community around the location of the development plan so that it can improve the welfare of the community in Berancah village.

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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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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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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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SENSITIVITAS INVESTASI STUDI KASUS PADA PENINGKATAN KAPASITAS PABRIK GULA SRAGI PT.PERKEBUNAN NUSANTARA IX

Jurnal Bisnis Terapan ◽

10.24123/jbt.v5i2.4032 ◽

2021 ◽

Vol 5 (2) ◽

pp. 155-166

Author(s):

Dyah Puspasari ◽

Suwandhi

Keyword(s):

Net Present Value ◽

Investment Decision ◽

Sensitivity Study ◽

Payback Period ◽

Selling Price ◽

Internal Rate Of Return ◽

Present Value ◽

Investment Value ◽

Cost Of Production ◽

The Cost

This study aims to determine the sensitivity of the increase or decrease in the selling price of sugar and drops, then the investment value, and the cost of production to the IRR obtained from the investment decision to increase the capacity of the Sragi Sugar Factory. Hypothesis testing is carried out on the results of the calculation of investment analysis which includes several commonly used parameters, namely Net present value (NPV), Internal rate of return (IRR), Profitability Index (PI), and Payback Period (PP), in this case as a comparison used The results of the IRR calculation. The results of the sensitivity study found that the selling price has the highest sensitivity, then the second is the investment value, while the cost of goods manufactured has the lowest sensitivity. The results of tests carried out on three parameters show that there is a significant change between the Selling Price, Investment Value and Cost of Production with the calculation of the IRR of an investment.

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