A Survey of Capital Budgeting

A SURVEY OF CAPITAL BUDGETING
PRACTICES IN CORPORATE INDIA
Satish Verma, Sanjeev Gupta and Roopali Batra
The present study aims to unveil the status of capital budgeting in India particularly after the advent of full-fledged globalisation and in the era of cutthroat competition, where companies are being exposed to various degrees of risk. For the above objective a comprehensive primary survey was conducted of 30
CFOs/CEOs of manufacturing companies in India, so as to find out which capital budgeting techniques is more preferred, discounted or non-discounted. The study also aims at examining the capital budgeting methods used for incorporating risk in investment proposals. It further endeavours to evaluate the impact of different factors or variables on the selection of a particular capital budgeting technique. For example, it was investigated that whether there exists any relationship between a size of company’s capital budget and the method of capital budgeting adopted by it. Similarly it was discovered that is there any systematic relationship between different company related factors like age of a company, CEO education/qualification and the capital budgeting method adopted by it.
Key Words: Capital Budgeting, Discounted Cash Flow, Non Discounted Cash Flow, NPV, IRR, Payback
Period, ARR, Discount Rate, Cost of Capital, Risk
INTRODUCTION
Firms invest in long term assets in anticipation of an expected flow of benefits over the lifetime of the capital asset. It involves sacrifice of a certain amount of present resources in exchange for a future return and an arbitrage over the time that involves risk.
For evaluating these investments or projects, various capital budgeting techniques or methods are available.
While certain companies still prefer old non-discounted less sophisticated techniques, others have moved towards more sophisticated discounted cash flow (DCF) techniques. The traditional non-discounted

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