oa Meditari : Research Journal of the School of Accounting Sciences - A review of the capital budgeting behaviour of large South African firms
|Article Title||A review of the capital budgeting behaviour of large South African firms|
|© Publisher:||University of Pretoria|
|Journal||Meditari : Research Journal of the School of Accounting Sciences|
|Author||M.J. Du Toit and A. Pienaar|
|Publication Date||Jan 2005|
|Pages||19 - 27|
|Keyword(s)||Capital budgeting techniques, Capital investment decision, Discount rate, Discounted cash flow, Internal rate of return, Net present value, Payback period, Reinvestment rate and South Africa|
This article reports on the results of a survey on how companies listed on the main board of the JSE Securities Exchange SA make a capital investment decision in practice. The respondents to the survey questionnaires provided answers regarding the methods that their companies use to evaluate capital investments, as well as to evaluate mutually exclusive projects. The results suggest that South African companies prefer to use the internal rate of return (IRR) and net present value (NPV) to evaluate capital investments. In addition, there appears to be a correlation between the methods that companies use and the size of their annual capital budget. Finally, a hypothetical problem was presented to the respondents, who were asked to choose between two mutually exclusive projects. Interestingly, the majority of the respondents chose the project which added the least value.
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