Capital Budgeting of Small Companies
5 :
Capital Budgeting Practices in Selected Indian Companies
5.1
Introduction
5.2
Data Analysis and Findings
5.3
Conclusion
129
Chapter 5 : Capital Budgeting Practices in Selected Indian Companies
5.1
Introduction:
This chapter examines the trend in capital budgeting practices of twenty eight companies operating in different industry. The search for a reliable method of project appraisal dates back to decades. The issue not only continues to be a matter of concern for academicians and managers but is also becoming equally significant for shareholders and other investors of the organization. There are number of tools available to determine the extent of profitability of a project but some of these methods are not taking care of the continuous changes taking place in business environment where shareholders value (wealth) maximizing is becoming a very important decision-making criterion. Further, these methods sometimes fail to address the basic problems of investment appraisal while some of these methods require complex decision making processes or it may require too much application of computers. Thus, the choice of appropriate capital expenditure appraisal method is becoming a difficult task for project managers, which requires critical analysis of various tools. Finance experts’ propose various options to address the basic problems of investment management.
My literature review reveals that the traditional discounted cash flow techniques (DCF) are most commonly used technique (Pay back Period) by many firms. Many organizations are greatly using modern discounted techniques at the same time some scholars are proposing to use techniques such as Monte Carlo simulations, real options etc. but all these techniques have been criticized for its own limitations also. For instance, traditional methods lack strategic vision. DCF techniques do not help in appraising all types of projects at all the stages of project
Capital Budgeting Practices in Selected Indian Companies
5.1
Introduction
5.2
Data Analysis and Findings
5.3
Conclusion
129
Chapter 5 : Capital Budgeting Practices in Selected Indian Companies
5.1
Introduction:
This chapter examines the trend in capital budgeting practices of twenty eight companies operating in different industry. The search for a reliable method of project appraisal dates back to decades. The issue not only continues to be a matter of concern for academicians and managers but is also becoming equally significant for shareholders and other investors of the organization. There are number of tools available to determine the extent of profitability of a project but some of these methods are not taking care of the continuous changes taking place in business environment where shareholders value (wealth) maximizing is becoming a very important decision-making criterion. Further, these methods sometimes fail to address the basic problems of investment appraisal while some of these methods require complex decision making processes or it may require too much application of computers. Thus, the choice of appropriate capital expenditure appraisal method is becoming a difficult task for project managers, which requires critical analysis of various tools. Finance experts’ propose various options to address the basic problems of investment management.
My literature review reveals that the traditional discounted cash flow techniques (DCF) are most commonly used technique (Pay back Period) by many firms. Many organizations are greatly using modern discounted techniques at the same time some scholars are proposing to use techniques such as Monte Carlo simulations, real options etc. but all these techniques have been criticized for its own limitations also. For instance, traditional methods lack strategic vision. DCF techniques do not help in appraising all types of projects at all the stages of project