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ABSTRACT
Company budgeting involves allocation of source financial resources
to long term investment. Thus, because of the involved capital there is
need for adequate manager. Through the aid of theories and provided with
capital budgeting techniques that aid capital budgeting appraisal. This
study investigate, the subject of capital budgeting in relation to
public and private companies. The companies use such a management tool
companies uses in which the application of such in the private and
public sector differ.
Hence the research work focuses on organization
selected from the public and private sector and the selection was based
on a random selection of companies that broadly represented both
companies. Findings of the study revealed that capital budgeting as
investment appraisal techniques was employed more by public companies.
Also business and finance theories such as return, profit and loss
analysis and accounting rate of return are employed in the business
studied.
This work has recommended possible way” of improving capital
budgeting in the private sector such as improvement and increasing in
methods adopted and improvement in management approach to capital
budgeting.
CHAPTER ONE
INTRODUCTION
Business is all about investment.
Investment involves a decision to part with present wealth or asset with
hope of increasing the value of the wealth in future. A business right
then be defined as an economic activity oriented towards producing goods
and services at a profit for satisfaction of mankind.
Business
organization brings man, money and material together in a concerted
effort to increase the value of all these resources through a form of
synergism, whereby than its parts. The business organization has it
profit making objectives as one of its motivating forces. A major tool
used by business manager in other to achieve the organizational goal is
capital investment appraisal.
The importance of capital investment
appraisal cannot be over emphaized, because management of any business
needs other essential to be financially successful. Among these are the
following:-
A product or service in demand
Adequate capital
Well defined objective
An adequate accounting system
Competent management
This research makes a critical look at the subject of capital investment appraisal, with special emphasis on capital budgeting.
Capital
expenditure involves more or less a permanent commitment of large sum
of money and decision concerning them significant long term effort on
the economic health of any concern. This gives room for careful analysis
on the part of management in decision involved foregoing present
consumption in the hope of greater future consumption. In order to forgo
present consumption management should be prepared to invest on capital
projects, fully appraised such that it will ascertain whether it provide
a return equal to or greater than required by the shareholders.
Capital
budgeting involves the decision making process with respect to
involvement in fixed assets qualified call. It involves measuring the
net cash inflow associated with investment proposals and evacuating the
attractiveness of these cash relative to the project cost.
This
research will be studing capital budgeting in public companies and
private companies. Public companies here would mean corporations. These
are in form of business organization that exists because the law has
confirmed existence on it. The country today has many of such
corporation. These public companies are mostly multi – nationals whose
equity holding run into millions. Let us find out if capital investment
is appraisal before being venture and if they are to what extent are
they appraised.
The other case in this study is the private
companies. These private companies are more in number than the multi
–national companies. Private companies unlike the public companies do
not have legal entity and have very much smaller capital base. These
private companies are however larger in number and are set up more
often. They also have to make investment decision like starting a new of
product, buying current automatic machinery to replace out-dated ones.
Choosing between building new factory or expanding the facilities in the
existing factory, since these two forms of business makes similar
capital investment decisions, the question is if we the same means in
subjecting capital investment alternatives to text before decision are
made. The research also tried to establish if this management tool is
used by any of this business organization.
If it is been to what
extent is it being applied? It is also aimed at finding out if there are
any disparities existing in appraisal methods and why these difference
exist. This research work also tries to print out ways of employing
capital investment appraisal in private companies.
STATEMENT OF THE PROBLEM
Phinomar Nigeria Limited
did not use capital budgeting as an appraisal tool because the company
business operation did not encourage the use of capital budgeting is an
investment appraisal instrument
Unreliable methods of keeping records were discovered as a common practice in Phinomar Nigeria Limited.
Phinomar Nig. Ltd. Management did not term it necessary to use any appraisal tool for management decision.
Phinomar accounting staff employed for the purpose of transitional accounting function was utilized for recording keeping.
OBJECTIVE OF THE STUDY
To determine to what
extent did Phinomar Nigeria Limited did not encourage the use of capital
budgeting as an investment appraisal
To find out reason. For inadequate or non – existence of the capital investment appraisal in Phinomar Nigeria Limited.
To
suggest solution towards a better structure and effective conduct of
appraisal in Phinomar Nigeria Limited. Also suggest possible ways of
encouraging the Phinomar to use and possible improve on capital
investment method.
To examine the methods of investment appraisal in PHINOMAR NIG – LTD
To determine whether they have approved adequate or otherwise.
RESEARCH QUESTIONS
The research questions are as follows:
Had PHINOMAR NIG.LTD applied these management tool for their investment appraisal instrument.
To what extent is it being applied in the PHINOMAR as an instrument for the capital budgeting.
Does any disparities existing in applying management tool and why these difference exist.
To what extent does it help PHINOMAR approved adequate in taking decision in their business.
SCOPE AND LIMITATION OF THE STUDY
The scope of
the project boarder on capital investment appraisal in Phinomar Nigeria
Limited as a case study. It tries as much as possible to cover various
aspect of capital budgeting which includes formation of long –term
goals, searching for investment proposal estimation and forecasting of
current and future cash flow economic evaluation of alternative project,
the preparation of appropriation and control budget, and integration of
those budgets in the firms information system review of the performance
of post projects.
The study will cover selected private company
(Phinomar Nigeria Limited as a case study in the project. The study will
definitely be more encompanies if it covered as many institution as
possible, due to limitation in time factor and money the research will
only cover a selected company chosen.
SIGNIFICANCE OF THE STUDY
The important of the study of
Capital
investment appraisal in Phinomar Nigeria Limited involves the decision
making process with respect to investment in fixed assets specifically.
It helps the manager to determining the long term objective of the company business
The successful administration of capital investment appraisal in Phinomar Nigeria Limited involves
Generation of investment proposal
Selection of project budget
Execution of project budget
Estimation of cash flow
It help assist manager in Phinomar to improve and adopt strategies to reduce loss of capital in the business operation.
It ensure reliable methods of keeping records.
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