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Capital Budgeting Decision In Manufacturing Company
[A CASE STUDY OF VITAL FOAM NIGERIA PLC LAGOS]
CHAPTER ONE -- [Total Page(s) 4]
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Capital budgeting is a broad field involving many sophisticated techniques for evaluating the financial and non-financial considerations capital expenditures differ from day to day revenue expenditure because of the following.
1. The involve large outlay
2. The benefits will accrue over a long period of time, usually well over one year and often much larger, so that the benefits cannot all be set against costs in the current year’s P and L account.
3. They are very risky
4. They involve irreversible decision
According to oye Akinsulire (2005): capital budgeting involves all investment tin long-term projects. It is the process of selecting alternative long term investment opportunities i.e. It is the process of committing the company’s fund into long term projects. These projects would normally have life spans exceeding one accounting period. The procedures involved in capital budgeting decisions are as follows:
• Identification of possible projects (investments profile)
• Evaluation of projects
• Authorization of projects
• Development stage
• Monitoring and control of projects
• Post audit.
A very important part of a management accounting job is to provide information will assist the making decision concerning the investment of capital funds. This is the process known as capital budgeting.
Hence, we need to evaluate every investment proposal to use if it is viable or not. In making such decision, analyst must be very careful because capital budgeting usually involves a lot of money and cannot be spent in an haphazard way.
1.2 STATEMENT OF THE PROBLEM
Financial advisers and invent managers are faced with so many problems and do not have absolute authority in discharging their responsibilities their actions are constrained by certain factors beyond their control.
There are two distinct factors which exert very string influence over budgeting decision making process individual and corporate investors carrying out their investment business in line with the legal framework and in confronting with the nations economy.
Therefore, there are internal environment which refers to internal structure of the firm and those that exists that is external environment. The internal environment addressed the inadequacy of human resources as one of the most principals factors where as the external environment includes factors such as the political economics cultural, social, legal and technological framework within which the firm operates. Capital budgeting decisions are further compounded by the high rate of inflation in Nigeria economy, the nature and size of the projects in question and decision maker is the value judgment and his skill and expertise as well as liquidity constraints.
The research shows among other things that capital budgeting techniques are very vital and important in organizational flexibility, profitability, applicability and reliability in taking decision.
1.3 AIMS AND OBJECTIVES OF THE STUDY
The aim of this research is to under study the capital budgeting decision in manufacturing company taken vital-foam Nigeria plc, as the case study.
To achieve the above aims therefore, the following objectives will be taken into consideration.
ï¶ To reveal the risks and uncertainty inherent proposal
ï¶ To determine the profitability of an investment proposal
ï¶ To determine factors affecting capital budgeting decisions
ï¶ To reveal other quantitative factors affecting capital budgeting decisions.
ï¶ To determine whether the investment is worthwhile undertaking or not.
CHAPTER ONE -- [Total Page(s) 4]
Page 2 of 4
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