ABSTRACT
Investment appraisal techniques which is particularly
known as capital budgeling is one of the four main managerial decisions and
also forms a crucial part of the management functions. It is invariably a top
management exercise due to its long-term nature it involves capital expenditure
decision making. In this research project, the research design adopt for the
study is descriptive research design,this is due to the fact that data for the
study is primary in nature and would be collected through the administration of
questionnaire. The sampling technique that was adopted for the purpose of this
research work is simple random sampling.
Furthermore, the data has been analyzed using a simple
percentage,and the result was interpreted based on Chi-square technique to test
each of the three hypotheses of this research
work in order to analyze the difference among the
independent means. The major finding of the research work shows that Companies
should ensure that the financial manager or management accountant evaluate the
fixed asset proposed to invest in and report to the top management.In
conclusion,Companies should ensure that the financial manager or management accountant
evaluate the fixed asset proposed to invest in and reportto the top management.
All factors and steps necessary for capital budgeting must strictly adhered
to,so also the process of capital expenditure decisions. Risk analysis in
capital budgeting decisions should also be applied to the relevant proposed
asset decided to invest upon.
TABLE OF CONTENT
Title
page..........................................................................................................................................i
Approval
page.................................................................................................................................ii
Declaration.....................................................................................................................................iii
Dedication.......................................................................................................................................iv
Acknowledgement.........................................................................................................................v
Abstract..........................................................................................................................................vi
Table of
content..............................................................................................................................vii
CHAPTER ONE
INTRODUCTIONS
1.I Background of the study..............................................................................................................1
1.2 Statement of the
problem............................................................................................................1
1.3 Objectives of the study................................................................................................................2
1.4 Research
question.......................................................................................................................2
1.5 Significance of the
study.............................................................................................................3
1.6 Scope of the
study.......................................................................................................................3
1.7 Limitation of the
study.....................................................................................................
.........3
1.8 Definition of the key
terms........................................................................................................4
1.9 Historical background of three brothers rice mills
plc..............................................................6
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction...............................................................................................................................8
2.1 Conceptual
framework.............................................................................................................8
2.2 Features of capital budgeting....................................................................................................8
2.3 Objective of capital
budgeting................................................................................................10
2.4 Capital budgeting process......................................................................................................11
2.5 Capital budgeting
Decision...................................................................................................11
2.6 Significance of capital
budgeting...........................................................................................14
2.7. Why is capital budgeting
important.......................................................................................15
2.8 Theoretical frame
work...........................................................................................................16
CHAPTER THREE
RESEARCH METHODOLOGY
3.0
Introduction............................................................................................................................20
3.1 Research
design.......................................................................................................................20
3.2 Population of sample
size.......................................................................................................20
3.3 Sampling
techniques................................................................................................................21
3.4 Data collection.........................................................................................................................21
3.5 Method of data
analysis..........................................................................................................22
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.0
Introduction..............................................................................................................................28
4.1 Data presentation.....................................................................................................................28
CHAPTER FIVE
SUMMARY, CONCLUSION, AND RECOMMENDATIONS
5.1
Summary...............................................................................................................................44
5.2
Conclusion.............................................................................................................................44
5.3
Recommendation....................................................................................................................44
Reference
Appendix/Questionnaire
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Investment appraisal techniques which is particularly
known as capital budgeting is one of the four main managerial decisions and
also forms a crucial part of the management functions. It is invariably a top
management exercise due to its long-term nature it involves capital expenditure
decision making.
Decision to invest will be based on the three main
factors which involve Investors belief about the future, Alternatives available
in which to invest and Investor attitudes toward risk.
After considering the above factors, numerous
investment appraisal techniques are available to assist the top management in
evaluating, analyzing, and selecting viable investment projects. But it has to
be noted that the decision rule on the project(s) evaluated depends on whether
the projects are mutually exclusive, independent and/or dependent projects. The
techniques of evaluating investment/capital budgeting to be discussed in this
research work are;
Traditional techniques or non-discounting cash flow
criteria; Pay Back Period (PBP) and Accounting or Average rate of return (ARR),
Modern techniques or discounted cash-flow criteria, under this are; Net present
value (NPV), Internal rate of return (IRR) and Risk analysis in capital
budgeting
All the above three techniques have common
characteristics of computing the return expected and the investment require.
1.2 STATEMENT OF THE RESEARCH PROBLEM
Most of the Nigeria economic sectors like companies,
industries, government corporations and private individual find it difficult to
evaluate and analyze project whose returns are expected to extend below one
year. Also they do not consider certain important factors during investment
decisions and the pervasive nature of most capital project affects almost all
other units every economic sector (business organization), Faruq Haruna(2013).
That is why most of the long investment made nowadays
in Nigeria is not viable. All time the contribute the major factors of the most
business failure due to the fact that the success or failure of firms depends
on the investment decision.
The above problems and other relevant factors
necessitate the conduct of this research work so as to solve or reduce the
problems associated with three brothers rice mills plc.
1.3 AIMS AND OBJECTIVES OF THE STUDY
The objectives of the study involved:
I. To examine
whether investment appraisal techniques can be very important tools for
investment decision.
II. Whether to recommends to management of three
brothers rice Mills for applying investment appraisal techniques in evaluating
their capital investment.
III. To see whether any higher return on investment by
the company depend on proper investment decision taken by the company.
1.4 RESEARCH QUESTIONS
For the purpose of this research, the following
research questions has been postulated based on quantitative analysis;
I. Is investment appraisal techniques very effective
tools for long term investment decision in three brother’s rice mills?
II. Should the
management of the company apply investment appraisal techniques in evaluating
capital investments?
III. Does the higher return by the company depend on
proper investment decision made by the company?
1.5 SIGNIFICANCE OF THE STUDY
This project will be significance to managers and
investor for investment decision and can be serve as an area of reference for
the future research that may wish to study an assessment of capital budgeting
as effective tools for long term investment decision in other domain.
1.6 SCOPE OF THE STUDY
The scope of this research study is restricted to three
brothers rice mills together with individual who are ready to commit funds in
assets whose returns can be extended beyond one year.
1.7 LIMITATION OF THE STUDY
This research work like any other research of its kind
is not entirely free from limitations, the limitations include not limited to
reluctance of the company's officers to release document due to official
secrecy, the information available to the researcher was only limited to those
in the document and the account of the company, important record considered by
the organization for internal use were not disclosed to the researcher for fear
of being leaked to competitors.
It also limited to consumer goods firm (three Brother
rice Mills) does not consider other sectors such as financial institution and
manufacturing in Nigeria.
Time factor also limited to this research consequently
this become difficult for the researcher to carry out detailed financial
analysis.
1.8 DEFINITION OF THE KEY TERMS;
Accounting rate of returns / Average rate of returns
(ARR): Is the average profit from an investment before or
after expressed as a percentage of the average investment.
Business Risk: This is the possibility
of suffering of damage or inherent uncertainties in physical operation of a
firm.
Capital Expenditure: These are
expenditure of fixed asset i.e. goods that have a long life.
Cash Flow: This refers to the flow
of cash in and out of the business or the pattern of cash receipts and
payments.
Coefficient of Variance (CV):
The ratio of standard deviation of the distribution to the mean of that
distribution. It is a measure of relative risk.
Cost of Capital: It is the rate of
return that must be earned in order to satisfy the combined required rate of
return of the company's investors. It is also used to discount the capital
expenditure/investment.
Discounted cash flow: a
techniques use to calculate the present value of a sequence of future cash
flows in order to determine the most profitable investment from the several
alternatives.
Expected value: an average
computed by multiplying each value of random variation by its probability of
occurrence.
Internal rate of rate: this
is the discount rate of a project that yield a zero NPV. The decision rule is
to accept the project if IRR, is greater than IRR, otherwise the project is
rejected.
Interpolate: this is otherwise
called extrapolate; it is the estimation of an unknown number that lies same
where between two known numbers.
Investment appraisal: these
are numbers of techniques for assessing investment in new projects. It is
examined to see if the return on the investment is satisfactory as compared
with alternative projects.
Net present value (NPV):
this is the present value of the cash flow minus the present value of the cash
outflow.
Pay Back Period (PBP): this
the period of the time required for the cumulative expected cash: flows from
an-investment project to equal the ignition cash outflow.
Present value: discounted value of the
future cash flows;
Profitability Index (PI):
The ratio of the net present value of a project future net cash flow to the
project initial cash outflows. But some authors take gross present value as
illustrated, Tijjani (2005).
Standard Deviation (SD): This
is the statistical measure of variability of distribution around its mean. It
is the square root of the variance.
Required Rate of Return (RRR): This
is the minimum rate of return that the project must yield to justify its
acceptance.
Variance: This is a measure of
dispersion of random variable equals the expected value of the squared deviation
from the mean.
1.9 HISTORICAL BACKGROUND OF THE STUDY
Brothers Rice Mill: ventures in
processing and manufacturing of rice. The Company is situated in Jigawa state.
The three brothers are component of milling rice since
before 1992 at that time are called Atafi rice mile pending we used the
statuary allowed to all local government under Hadejia council the company that
consumption the statuary allowance to pay employers to pay laborer.
2010 is acquired by Alhaji Lawan a. a so that around
2010 the give the name three brother rice mill for company it start production
in 2015 till date.
WE HAVE DIFFERENT TYPE OF SECTOR
- Security unit
- Weight bread and
scalloping unit
ADMISSION BLOCK
- Purchased
- Marketing
- Sales
- Accounting
RAW MATERIAL WHERE HOUSING
Is a store where paddy rice
are cage.
FACTORY RESITE
- Pre clearing resection
- Par boiling resection
MILLING SECTION
- Indian technology system
Chinese technology
system
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