THE CONTRIBUTION OF PRIVATE SECTOR CAPITAL BUDGETING IN NIGERIA

ABSTRACT

Capital budgeting involves basically the estimation of the cash flow, estimation of the expected cash return and application of evaluation techniques in making investment decision. This study looked into the extent to which the private sectors do carry out proper evaluation of capital project before making their investment decisions as well as the extent in which other factors are considered in the decision process.

The study will ascertain the extent to which capital budgeting evaluation techniques are used by the private sectors in evaluating the capital budgeted project and consider whether well evaluated project will yield adequate return for investors as well as the other factor, which influences the selection of the project to be invested in. in arriving at my conclusion, interviews were conducted and statistical test such as the chi- square were used in analyzing data collected at the course of the study.

Results of the study shows that the evaluation of the capital project by the management of some private sectors are not normally carried out effectively before making their investment decision and that a well evaluated project will normally yield on adequate return on investment. Based on the findings, some recommendation has been put forward for consideration in chapter three.

CHAPTER ONE

1.0 Introduction

1.1 Background Of The Study

Every business firm normally will like to know how it performs over a period of time thus leading to a preparation of profit and loss statement. They also ask about their position at a particular point in time, which leads them to proper balance sheet. Finally, they will like to know where they are leading which leads to the preparation of budget. A budget is a part of a plan which can be expressed in monetary and noon-monetary terms. In budgeting, there are types of budgets prepared by firms. Such budgets include capital budget, sales budget, and cash budget etc.

The process of preparing capital budget is called budgeting. Capital budget are long term budget made for acquisition and expansion of fixed asset. Capital budgeting originated from the United States of America (USA) in America, it was applied by all firm before the second war. After the second war, many firm saw the need to plan for its capital expenditure. This is however not easy as it is fought with a lot of problem.

1.2 Statement Of The Problem

The main purpose of setting up a private firm is to achieve enough sale revenue that will cover the fixed and the variable cost as well as having profit to justify its existence.

Most private sectors have the objective of making huge profit. The introduction of many straight economic measure after the year 1982 aim of revamping the nations live economy brought with it many problems with the private sectors were not left out. In order to produce, firms and other private industries acquire fixed asset as well as raw material. This acquisition is based on the expected demand.

The uncertainty surrounding the rate at which the demand for goods decrease has become of the problem encountered by the capital budget especially by the private sectors since the capacity of production is always affected by change in the demand of the product and services.

Apart from the capital budgeting problem caused by the uncertainty in the change in the demand, there is also a problem of tariff and import restriction in the importation of fixed asset and the spare parts. This problem has made some private companies to look for alternative way of obtaining fixed asset necessary for its production and operation. There is always a problem of appropriate selection that will be peculiar to a given project. As encountered in the project is the selection of human factor, which is fidelity of the state of mind of the individual in charge of the capital budgeting.

1.3 Purpose Of The Study

The purpose of the study is to find out the following;

Ascertain whether well evaluated project will yield the adequate return for the investor.
Ascertain the extent to which capital evaluation techniques are used by the private sectors management in evaluating their project.
Determining the other factor which influences the selecting of project to be invested in.
Knowing the capacity of the budgeting process in the private sector.

1.4 Significance Of The Study

Capital budgeting is an important aspect of strategic decision making involving the financial management in the purchase of fixed assets.

The outcome of the research work will be of significance to the management of private sectors who are faced with capital budgeting decision problem. It will also be of significance to the investor who wishes to invest in capital project.

Finally, it will equally be important to other researchers and scholars who may wish to carry out further research on the subject matter or on the related topic.

1.5 Scope Of The Study

The study will examine the capital budgeting techniques of the private sectors in Nigeria and will be able to establish if there is any relationship between the budgeting techniques adopted by the firms.

1.6 Limitation Of The Study

Limitations abound in this type of study. So far, the limitations encountered are as follows;

1. Access To The Documents:

Experience has shown that apart from carrying out academic research in firms, it is also difficult to gain access to the document. This is considered impediment to the study.

2. Time Constraint:

Unlimited study would have been considered if there were enough time for that. Time constraint was the most inhibiting factor which otherwise would have enabled on extensive pursuit of knowledge in this is of interest in capital budgeting.

3. Insufficient Information:

Documents wanted in order to aid the research work were not all obtained because of the interviewer's fear for letting out the company's secret. Some oral information was difficult to get.

1.7 Definition Of Term

Capital Budgeting: This is a long-term plan made for expenditure necessary to buy fixed asset for the production of goods and services.

Cash Flow: This simply means a flow of cash into a firm such as revenue from sale.

Finance: This is the term used to denote the acquisition and expending of fund to meet an economic unit objective.

…

CHAPTER TWO

2.0 Literature Review

2.1 Introduction

The review of relevant literature is the main topic of this chapter. A literature review covers theoretical and methodological contributions to a certain issue in addition to the state of knowledge at the time of writing. It provides information about the state of the art in relation to the subject you are writing about. It examines the body of work on the chosen subject. The literature evaluation in this study comprises the …

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Preliminary Pages,
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TABLE OF CONTENTS
PRELIMINARY PAGES

Title page
Approval page
Dedication
Acknowledgement
Table of Contents
Abstract
CHAPTER ONE
1.0 Introduction
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose of the study
1.4 Significance of the study
1.5 Scope of the study
1.6 Limitation of the study
1.7 Definition of terms
CHAPTER TWO
2.0 Literature review
2.1 Introduction
2.2 Importance of capital budgeting decision
2.3 Types of capital budgeting decision
2.4 Analysis of capital project
2.5 Determining the cash flow
2.6.0 Techniques used in capital budgeting decision
2.6.1 Payback method
2.6.2 Net present value
2.6.3 Internal rate of return
2.7 Ranking of investment proposal
CHAPTER THREE
3.0 Summary of findings, conclusion, recommendation
3.1 Summary of findings
3.2 Conclusion
3.3 Recommendation
BIBLIOGRAPHY

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