Original Research

Do managers of South African manufacturing firms make optimal capital investment decisions?

E. Gilbert
South African Journal of Business Management | Vol 34, No 2 | a678 | DOI: https://doi.org/10.4102/sajbm.v34i2.678 | © 2018 E. Gilbert | This work is licensed under CC Attribution 4.0
Submitted: 12 October 2018 | Published: 30 June 2003

About the author(s)

E. Gilbert, Graduate School of Business, University of Cape Town, South Africa

Full Text:

PDF (201KB)

Abstract

Managing the deployment of a firm’s assets in the form of capital goods is a vital determinant of a firm’s ability to successfully compete over time. Corporate finance theory clearly prescribes a rule to ensure the optimality of these decisions: all capital investment decisions should be evaluated through the use of the net present value (NPV) rule while project specific risk should be incorporated through the adjustment of the discount rate used in the NPV analysis.
This paper presents the results of a survey of the capital investment evaluation practices of South African manufacturing firms. The results indicate that the majority of firms surveyed do not use the NPV evaluation technique when making their capital investment decisions. Furthermore, those firms that do use this technique use it in combination with other, theoretically deficient (and redundant) techniques. Finally, they do not adjust for project specific risk as prescribed.

Keywords

No related keywords in the metadata.

Metrics

Total abstract views: 1738
Total article views: 699

 

Crossref Citations

1. The evolution of the application of capital budgeting techniques in enterprises
Simiso Siziba, John Henry Hall
Global Finance Journal  vol: 47  first page: 100504  year: 2021  
doi: 10.1016/j.gfj.2019.100504