THE SIGNIFICANT OF INVESTMENT APPRAISAL TECHNIQUES TO MANAGEMENT DECISION MAKING
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Study Level: BTech, BSc, BEng, BA, HND, ND or NCE
1.0 GENERAL INTRODUCTION OF THE RESEARCH
In a modern economy, there are varieties of different enterprises, varying in size from a single entrepreneur to the multinational corporation in an activities methods of finance form of organization marketing strategies and so on. However, all these entrepreneur have one basic aim which is to utilize resources to best achieve the firm goal or objectives. The word ‘firm is used in a general term to encompass the decision making unit which is engaged in the transformation of input into outputs.
The investment decision of the firm is generally known as capital budgeting or capital investment decision. Investment decision are those decision that involve current outlays in return for a stream of benefits in future years. In another word, investment decision include the firms decision to put its current fund in the longterm assets in anticipation of an expected flow to benefit over a series of years;
The firm’s investment decision will include expansion, acquisition, in organization and replacement of the longterm assets decisions, other activities like research and development, advertisement, change in method of distribution and so many also be evaluated as investment decision thus investment in fixed and current asset is one single activity.
Capital investment decision normally represent the most important decisions that a bank makes because, a substantial proportion of a bank product are committed to action that are likely to be irreversible and this also make it imprerature for the banks to plan its investment programmes very carefully.
Business firm invest hundred of billions of naira each year. A good decision can boost earing sharply and increase the price of firm stock while a bad decision can lead to bankruptcy such decision are applicable to all sector of the economy, either public or private sector which includes the banking industry.
Capital investment decision is the most crucial and most important of the three decision when it come to the creation of value. In other words investment decision normally represent the most important decision that an organization makes, since of commit a substantial percentages of its resources to action that are likely to be irreversible.
It is important to appreciation that there are number of criteria that could be employed in making management decision but the significance of investment appraisal technique in decision making cannot be over emphasized.
Investment appraisal techniques serve both financing and investment decision. There is a need to look at the various alternative available and choose that will yield highest.
1.2 STATEMENT OF RESEARCH PROBLEM
The research is carried out with a view to testing the effectiveness of investment appraisal techniques in management decision making, many desirable investment project are not undertaken as a result of shortage of funds leads to capital rationing in many project with positive NPV are rejected (Net Present Value) this is the method of evaluating the investment proposals.
1.3 OBJECTIVES OF THE STUDY
The study is aimed at providing general preview of investment decision making processes in banking industry. This entails how the project are initial analysed.
Another objectives of the study include
- To ascertain the significance of investment appraisal techniques.
- The tax implication on investment appraisal and risk, uncertainly on investment appraisal.
1.4 SIGNIFICANCE OF THE STUDY
This study will be most, relevant to the managers of organizations in determine the choice of investment project among various investment opportunities or alternatives.
Again student or intending researcher may find it useful as references or basis of their further enquires as other areas needing investment will be pointed out in the course of the study.
1.5 SCOPE AND LIMITATION OF THE STUDY
The scope of this study will cover capital investment decision in manufacturing companies and banking industry otherwise know as “Capital budgeting any other investment decision may be mentioned in the study but special emphasis shall be land on capital investment decision i.e. longterm decision making.
All information apart firm the case study (UBA) and as the result the study may be limited or constrained reluctancy in giving the required information by the management of UBA, be cause of the urgency this research work is limited by time constraint and there is shortage of found to carryout my investment.
1.6 RESEARCH METHODOLOGY
The nature of this study permit the use of both primary and secondary data the secondary data will be predominantly used.
Simply because of primary data were to be used, information may not be secured due to the strictness of the UBA in disclosing secret and relevant information on capital investment decision in manufacturing and banking industry and they are product of various appraisal techniques.
Secondary data are kind of data that has already existed some where or which other researchers have worked on the secondary data which shall be collected from either published, text books, journal or library.
1.7 ORGANIZATION OF THE STORY
The structure of the research work is divided onti five chapters.
Chapter one (the introduction) this will deal with general introduction of the research.
Chapter two (literature review) is the study that will shield light on the works of different authors researcher in related fields and review of every journal and literature that related and relevant to the research study.
Chapter three (Research methodology) it will show method of data collections and how they are going to be analyzed and qualified using chi-square statistics, brief history of the case study, United Bank of African Plc.
Chapter four (Data analysis and presentation) it will contain presentation of result, text of hypothesis, it also cover the interpretation of result.
Chapter five (Summary, Conclusion and recommendation) which is the last chapter is going to summaries the research work and recommendation will be made leased or the finding.
1.8 DEFINITION OF TERM
* Accounting rate of return (ARR); it is a method of using accounting information as reviewed by financial statement to measure the profitability of an investment.
* Appraisal techniques; this is a criteria for measurement of investment worth.
* Capital budgeting, this is complex theoretical area which involve investment and financial decision.
* Cost of capital: The project cost of capital is the minimum acceptable rate of return on funds committed on the project
* Discounted factor: It is an appraisal criteria that takes into consideration true value of money.
* Net Present Value (NPV): This is the class is economic method of evaluating the investment proposals. It is one of the discounted value of money.
* Investment: This is the process of committing fund to a particular project in anticipation of flow of benefits.
* Profitability index (PI): It is a time adjusted method of evaluating the investment proposal. It is otherwise known as benefit cost (BIC) ratio.
1.9 GENERAL HYPOTHESIS
The general hypothesis to be tested in this study are: Ho, investment appraisal technique will not have positive impact on management decision making.
Hi: Investment appraisal techniques will have positive impact on management decision making.
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