The Problems and Prospects of Capital Budgeting among Nigerian Firms: Literature Analysis

Abstract

Previous studies examined the concept of capital budgeting since 1960s. Such publications came up with several alternatives in the appraisal of investment by firms ranging from simple to complex approaches with corresponding strengths and weaknesses. This paper’s central focus is to identify and examine the most prevent tools of analysis in the Nigerian environment with the view to bringing to light their inherent strength and weaknesses. Unlike several studies that were examined, this paper uses local and international literature on capital budgeting application as the main source of data for analysis. The studies concluded that the Discounted Cash Flow method is widely popular but grossly misapplied even in advanced economies owing to its technicality and lack of dedicated capital budgeting personnel. The paper recommends the use of real-options along with the NPV, as well as the capital budgeting manual and post investment audit should be entrenched in improving the techniques and process of Complex investment decision.

Keywords: Capital Budgeting, Problem and Prospects, Nigerian Firms, Literature Analysis