Capital Budgeting: The Economic Evaluation of Investment Projects.

1969 ◽  
Vol 24 (5) ◽  
pp. 995
Author(s):  
Douglas V. Austin ◽  
William H. Jean
Keyword(s):  
Economic Evaluation ◽  
Capital Budgeting ◽  
Investment Projects

scholarly journals EXPLANATION OF THE BENEFIT OF THE INVESTMENT PROJECT ON THE CASH BASIS / IZRAŽAVANJE KORISTI INVESTICIONOG PROJEKTA NA GOTOVINSKOJ OSNOVI

2019 ◽  
Vol 16 (2) ◽  
Author(s):  
Dijana Kremenović
Keyword(s):  
Growth And Development ◽  
Investment Decision ◽  
Investment Decisions ◽  
Investment Project ◽  
Capital Budgeting ◽  
Investment Activity ◽  
Investment Projects ◽  
Investment Process ◽  
Additional Value ◽  
Cash Basis

Decisions about the choice of investment projects can significantly affect the destiny of the company, its competitive position in the market, market participation, the direction of further technological development, and even the survival of the company. The aim of this paper is, in the conditions of the current economic reality, to point out the significance of the choice of methods of expressing the benefit of an investment project. In this sense, we have explained in detail all currently applicable methods for assessing the viability of investment projects on a cash basis, comparing the good and bad sides of all the methods presented. In this connection, we especially pointed out the importance of the time value of money. The decision to apply the capital budgeting process, certainly, is the decision of the company itself. However, the outcome of investment activity is borne by a wider circle of consumers, which should be a sufficient reason to encourage education and the application of current methods in this area. If you want to realistically look at the investment process and evaluate the justification of an investment project, it is necessary to identify and analyse the effects of exploitation of a particular investment. In order to ensure the realization of the company’s basic strategic goals and thus ensure its growth and development, it is necessary to make decisions in which the company will focus its investment activities on this investment projects whose effects will ensure the highest return on investment. This work deals with the complex issues of making adequate investment decisions using a method for assessing the viability of investment projects on a cash basis. Bearing in mind the significance of investment activity, we can conclude that for the purpose of making a good investment decision, it is necessary to realistically look at the entire investment process and assess the justification of the implementation of the investment project. In this sense, we identify, measure and quantify the overall effects of the realization of a particular investment. Capital budgeting for the purpose of making an investment decision today is a generally accepted concept in developed economies. There is no doubt that there are many disagreements regarding the choice of the methods of assessing the viability of investment investments, and then the selection of criteria within a certain method. However, it is quite certain that the rich experience of developed countries undoubtedly points to the need for capital budgeting, investment project management, with particular emphasis on the use of discounted methods for assessing the viability of investment investment and respecting both economic and non-economic effects. Implicit benefits that the application of capital budgeting brings to the overall growth and development of the company, in terms of reducing uncertainty in making investment decisions, easier ranking of investment projects, exact measurement of expected benefits, transparency of investment activity criteria, attracting investors and ultimately creating additional value and greater degree of realization of strategic company goals.With this work, we pointed out the fact that capital budgeting is crucial in the process of making an investment decision and in that way has influenced enterprises to seriously deal with the choice of the method of estimating the profitability of investment projects that will surely result in additional value for the company.

scholarly journals Evaluation of Investment Projects: A Case from Turkish Cement Sector

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.

Increase of oil recovery with harmonization of the interests of state and mineral developers

2021 ◽  
pp. 28-34
Author(s):  
A.Ya. Khavkin ◽  
Keyword(s):  
Economic Evaluation ◽  
Oil Recovery ◽  
Production Cost ◽  
Oil Production ◽  
Internal Rate Of Return ◽  
Reliable Prediction ◽  
Investment Projects ◽  
Wide Scale ◽  
Active Implementation ◽  
Oil Gas

Based on the calculation of actual internal rate of return (IRRR) in the investment projects in the context of oil production, it is shown that using IRRR will lead to the reduction of oil production cost, increase of oil recovery and return both for state and mineral developers. The analysis on the economic evaluation of profitability of investment projects based on IRR and NPV, which force the managers to accept only the projects with high IRR for the guarantee of the actual economic efficiency has been carried out. It is noted that in some cases the state support of the mineral developer is necessary for his interest in oil production. Therefore, economic evaluation of profitability of development projects should be as accurate as possible. The author emphasizes that IRR criterion provides reliable prediction of actual efficiency of technological solutions and will lead to the wide-scale and active implementation of state-of-the-art technologies in oil-gas sphere, as well as reducing the oil production cost.

scholarly journals Do Firms' Characteristics Make a Difference of the Choice of Capital Budgeting Practices? Evidence from Sri Lanka

2017 ◽  
Vol 9 (2) ◽  
pp. 330
Author(s):  
Lingesiya Kengatharan
Keyword(s):  
Investment Decision ◽  
Capital Budgeting ◽  
Decision Makers ◽  
Master Of Business Administration ◽  
Primary Data ◽  
Sri Lankan ◽  
Investment Projects ◽  
Capital Budget ◽  
Similar Vein ◽  
Accounting Rate

The aim of this study was to examine the differences of the choice of capital budgeting practices in terms of firms’ characteristics of Sri Lankan companies. The primary data were garnered from 186 financial officers using self-administered questionnaires. Collected data were then analysed using independent sample t- test. The Results of the study revealed that the use of simple capital budgeting practices were mostly preferred by small sized firms and mainly managed by finance professionals with non-MBA educational qualifications and short tenure. Sophisticated and advanced capital budgeting practices were used mostly by large firms; and were mainly managed by finance professionals with master of business administration qualification and long tenure. According to the industry differences, accounting rate of return was primarily applied by non-MBA qualified financial officers and was also preferred by non-manufacturing firms. None of the other methods made any significant differences in terms of type of industry. Sophisticated capital budgeting practices were determined by the size of the capital budget, advanced capital budgeting practices were determined by both the size of the capital budget and the educational qualifications of the finance professionals. In a similar vein, simple capital budgeting practices were determined by the size of the capital budget, the educational qualifications of the financial officers, and type of industry. Overall, this study has made parametric contributions to the choice of capital budgeting practices in terms of firms’ characteristics of Sri Lankan companies. The findings of the study are useful to the investment decision makers when they are appraising investment projects.

Economic Evaluation of Ground-Source Heat Pump Air-Conditioning Systems

2012 ◽  
Vol 512-515 ◽  
pp. 1125-1128
Author(s):  
Liang Chen ◽  
Chao Zhang ◽  
Yong Li
Keyword(s):  
Economic Evaluation ◽  
Heat Pump ◽  
Air Conditioning ◽  
Evaluation Methods ◽  
Ground Source Heat Pump ◽  
Air Conditioning System ◽  
Investment Projects ◽  
Ground Source ◽  
Air Conditioning Systems

Analyze economically and make evaluation of several investment projects of ground-source heat pump combining relevant economic evaluation methods. Compare this system with other conventional air conditioning systems in economic input to provide suggestions for applying and promoting the ground-source heat pump air-conditioning system.

scholarly journals Optimal Dynamic Capital Budgeting

2018 ◽  
Vol 86 (4) ◽  
pp. 1747-1778 ◽  
Author(s):  
Andrey Malenko
Keyword(s):  
Optimal Design ◽  
Capital Budgeting ◽  
Capital Allocation ◽  
Past Performance ◽  
Investment Projects ◽  
Empire Building ◽  
Allocation Process ◽  
Optimal Dynamic ◽  
Over Time

Abstract I study optimal design of a dynamic capital allocation process in an organization in which the division manager with empire-building preferences privately observes the arrival and properties of investment projects, and headquarters can audit projects at a cost. Under certain conditions, a budgeting mechanism with threshold separation of financing is optimal. Headquarters: (1) allocate a spending account to the manager and replenish it over time; (2) set a threshold, such that projects below it are financed from the account, while projects above are financed fully by headquarters upon an audit. Further analysis studies when co-financing of projects is optimal and how the size of the account depends on past performance of projects.

Capital Budgeting and Shareholders’ Value: Investment Projects Versus Courses of Action

2014 ◽  
Vol 59 (3) ◽  
pp. 207-230 ◽  
Author(s):  
Maria Teresa Bosch-Badia ◽  
Joan Montllor-Serrats ◽  
Maria Antonia Tarrazon-Rodon
Keyword(s):  
Capital Budgeting ◽  
Investment Projects

scholarly journals Capital Budgeting Practice of Thai Firms

2015 ◽  
Vol 7 (1) ◽  
pp. 59-66
Author(s):  
Kereboon Champathed
Keyword(s):  
Capital Investment ◽  
Investment Decisions ◽  
Capital Budgeting ◽  
Payback Period ◽  
Internal Rate Of Return ◽  
Discounted Cash Flow ◽  
Investment Projects ◽  
Analysis Techniques ◽  
Corporate Capital ◽  
Individual Project

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.

scholarly journals Reflexiones sobre la importancia de la evaluación económica de proyectos de inversión pública para el Ecuador: El caso del Banco del Estado

UDA AKADEM ◽  
2018 ◽  
pp. 74-87
Author(s):  
Pablo Chafla ◽  
Jorge Guadalupe
Keyword(s):  
Economic Evaluation ◽  
Public Management ◽  
Social Impact ◽  
Public Investment ◽  
Public Institution ◽  
Evaluación Económica ◽  
Economic Resource ◽  
Investment Projects ◽  
The Public ◽  
The One

El presente trabajo es una reflexión académica sobre la situación actual por la que atraviesa la evaluación económica de proyectos de inversión pública en el Ecuador. Se toma como ejemplo emblemático el caso del Banco del Estado, que es, sin lugar a dudas, la institución pública llamada a fomentar y liderar el uso de esta metodología, por ser precisamente el banco que financia la obra pública de desarrollo del país. La importancia de someter a una rigurosa evaluación económica a los proyectos de inversión pública, radica fundamentalmente en que estos proyectos se financian con dinero público, que son recursos económicos que pertenecen a todos los ecuatorianos, y por lo mismo, todos debemos estar vigilantes de que estos recursos escasos se usen en aquellos proyectos que sean de mayor prioridad, es decir, se debe invertir fundamentalmente en los proyectos y actividades que generen un mayor impacto social (que representen un mayor beneficio para la sociedad). En tal sentido, y para asegurar que la elección entre proyectos alternativos, que tienen que realizar los gestores públicos, sea realizada con criterios de eficiencia económica y equidad, es que se propone la utilización de una evaluación económica, pero con una mayor rigurosidad que la que se viene aplicando en la actualidad.Palabras claveEficiencia en el gasto público, evaluación económica de proyectos, gestión pública, inversión pública. AbstractThe current work is an academic reflection about the actual situation that economic evaluation of public investment projects in Ecuador is going through. Taking as an emblematic example the case of the State Bank, which is undoubtedly the public institution that is called to encourage and lead the use of this methodology, by being precisely the one that finances the public developing work of the country. The importance of submitting a rigorous economic evaluation to public investment projects resides basically in the fact that these projects are funded with public money, which is an economic resource that belongs to all Ecuadorians, and because of this we should all be alert that this scarce resource is used in those projects of main priority; that is to say, it should be invested basically in projects and activities that generate a greater social impact (that represent a greater benefit for society). For that matter and to ensure that the election between alternative projects (that public managers have to do) is performed with economic efficiency and equity criterion, the use of an economic evaluation is  proposed, but with greater rigor than the one that has been applied up until today.Key wordsEfficient public spending, economic evaluation of projects, public management, public investment.

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