Capital Budgeting as a Tool of Management Decision Making: A Case Study of National Investment Bank Limited

Abstract

Sound financial management and decision-making on capital investments are critical to company survival and long-term success. With this truth affirmed by the global financial crisis, this study sets out to examine the capital budgeting tools at National Investment Bank Limited (NIB) in Ghana, adapted for management decision making. It establishes the various capital budgeting techniques used by NIB in undertaking investment projects and how these decisions affects the firm’s value, profit and growth rate. As methodology, the study adopts both primary and secondary sources which are further analyzed with the use of correlation analysis. The findings reveal that there is a positive relationship between the variables and their effects are significant. The study concludes that, the firm used capital budgeting techniques such as Net Present Value, Internal Rate of Return, Profitability Index, Discounted Payback Period, Payback Period and Accounting Rate of Return in order to maximize the firm’s value which is usually affected by the profit and the growth rate. Given the conclusion herein, the study recommends among others that NIB should educate and train their staff on the various capital budgeting tools and the formation of knowledgeable team that will evaluate projects using the capital budgeting tools due to its irreversibility nature, huge investment outlay and its long term effect.

Keywords: Capital budgeting, Techniques, Cash Flow, Investments, Decision making, Ghana

DOI: 10.7176/RJFA/11-4-04

Publication date: February 29^th 2020