ABSTRACT
The purpose of this project is to identify investment appraisal and project
evaluation techniques as a tool for decision making in an organization.
To carry out the research work, every organization needs to evaluate
project for the decision making of their organization. Therefore the projects
enumerate different types of decision in investment appraisal. And the study is
to assists the managers of organization to highlight the investment techniques
under different conditions especially the company chosen as the case study. More
so, the study will ensure organization the project that will generate adequate
returns on the investment decision.
The first chapter will look into the introduction of the research work
from: Background, Problem analysis, purpose of the study, relevant research
question, statement of the hypothesis, limitation scope of the study,
significance of the study and justification for investigating it; definition of
terms and concepts. Relevant literature will be reviewed in chapter two, the
chapter three will be methodology employed in the research work which will
contain, introduction, the statement of research question, restatement of
hypothesis, research instrument method of data analysis and method of data
collection. In chapter four, various data collected through questionnaire and
other means will be thoroughly analyzed. Chapter five will round up the
research study by giving the summary, conclusions and recommendation of the
finding of this study.
TABLE OF CONTENTS
CHAPTER ONE
BACKGROUND OF THE
STUDY
1.1 Introduction
1.2 Problem
Analysis
1.3 Purpose of
the study
1.4 Relevant
Research questions
1.5 Statement of
the Hypotheses
1.6 Limitation
of the study
1.7 Significances
of the study
1.8 Definition of terms and Concepts
CHAPTER TWO:
LITERATURE REVIEW
2.1 Model and
Theories relevant to the study
2.2 Current Literature based on each relevant variable
model and theory
2.3 Summary of
the chapter
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1 Outline of
the Chapter
3.2 Restatement
of the research question and Hypotheses
3.3 Research
Design
3.4 Sampling
Design
3.5 Data
Collection Instrument
3.6 Pilot test
including validity and Reliability of Test
3.7 Administration
of Data Collection Instrument
3.8 Procedure or
processing and Analysis Data
3.9 Limitation of
the Methodology of study
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.1 Introduction
4.2 Presentation
and interpretation of Data
4.3 Respondent
characteristics and classification
4.4 Test of
Hypotheses
CHAPTER FIVE
SUMMARY, FINDINGS, CONCLUSION
AND RECOMMENDATION
5.1 Summary
5.2 Findings of
the study
5.3 Conclusion
Drawn from the Findings
5.4 Recommendation
Based on the conclusion
5.5 Suggestion
for further studies
References
Questionnaire
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
Investment is the process of obtaining title deed to an asset such as
financial asset or real asset for the purpose of receiving returns form the
assets.
Investment appraisal determines whether or not new investment or projects
should be undertaken.
Project Evaluation is the process by which management plans analyses and
control organizations investment. On the other hand, investment decision is
technique that can be applied to any type of investment made by (individuals or
companies) where the financial implication can be identified.
Decision making cannot be said to be alien to managements, Infact, it is as
primitive as the existence of human organisms, since a choice has to be made
among alternatives (opportunity cost concept) due to scarcity of resources.
There are basically three major level of decision namely strategy decision,
tactical decision, Operational decision, each of these decisions are taken at
different hierarchy of the organization.
Having recognized the need of defined organization structure especially
with the advancement of technology and industrial revolution occasional by
rapid economic growth, different organization have deemed it fit to specify
their aims and objectives in order to achieve the organizational goals. Such
organization objective there exits investment decision making which is aimed at
selecting the investment project that will maximize the shareholders' wealth.
Project appraisal will be incomplete without looking at the basis stages
project has to go through, in relation of the project cycle in order to search
through the project identification and definition, project preparation, Project
analysis, project implementation and the evaluation techniques.
The traditional view of investment appraisal is on the old method which does
not consider the time value of money and it is fraught with some difficulties
which are peculiar to it. Such method includes:
·
Pay Back Period (PBP) Method.
·
Average profit or Accounting Rate of
Returns (ARR) Method.
The sophisticated method is also called the scientific or discounting
methods incorporated the time value of money into its analysis, thereby making
them to be more acceptable since they also take account of variables, having
critical impacts on investment decisions.
·
Net Present Value (NPV) Method.
·
Profitability Index (PI) or benefit
cost ratio Method.
·
Internal rate of return (IRR) Method.
However, investment appraisal under condition of risk and uncertainty shall
also be looked into with reference to the following techniques.
• Time based
Method
·
Probability based technique
·
Sensitivity analysis and Simulation
techniques.
In an attempt to round off this research, the important of project
implementation evaluation will be summarized in order to identify the various
quantitative and qualitative factors which might affect the company's decision
making so as to carry out the control function and suggest corrective measures
in order to forestall negative interference in the
company's investment project decision making process in the future.
1.2 PROBLEM ANALYSIS
The problems faced in preparing and analyzing of the project is stated
below such as:
i.
Limited Materials which can be said
as the problem in getting accurate
information for the project analysis.
ii. Another problem faced is time in carrying out the proposed project.
iii. Research instrument is another problem faced in analysis the project.
iv. Inadequate data on the other hand are the problems faced in presenting the
proposed project.
v. Limited information from respondents which cause problem in analyzing the
proposed project.
1.3 PURPOSE OF THE STUDY
Every management of various organizations should evaluate any project before
fund is committed to it.
i.
Therefore the purpose of the study is
to enable the manager of a company to identify various projects that can be
appraised or evaluated.
ii. It highlight the conditions under which project can be evaluated.
iii. The study is to enable company
manager to enumerate different types of decisions in investment appraisal.
iv. The study is to help the manager to highlight the investment techniques
under different conditions.
v.
The study critically examines the
various project evaluation. Techniques that will aid management in their
investment.
vi. The study states the similarities between short run and long run decision
making of the investment.
vii. It enables the financial manager to forecast the possible event of the
project with certainty.
viii. It emphasize on the methods of investment appraisal that incorporate the
time value of money and those that do not incorporate the time value of money.
ix. The study will ensure manager the project that will generate adequate
returns from investment chosen aid fund committed.
x.
The study will enable the manager to
know the strategies to be adopted in the investment process.
1.4 RELEVANT RESEARCH QUESTION
i. What is
investment appraisal?
ii. How does
the condition under project is appraised affecting the investment decision
making?
iii. What are the types of decisions that can be
made when investing?
iv. How might one be able to assess the potential
economic value of those strategies?
v. What are
the similarities between short run and long run decision making?
vi. What are
the techniques to take in decisions making of investment?
vii. What are the factors to be considered when
capital budgeting decision is involved in investment?
1.5 STATEMENT OF THE HYPOTHESIS
The findings are based on hypotheses upon the observation techniques will
be used.
Ho: Investment
appraisal is not significant in decision making of any project evaluation of an
organization.
Hi: Investment
appraisal is significant in decision making of any project evaluation of an
organization.
Ho: Project
appraisal techniques are not relevant in investment decision making.
Hi: Project
appraisal techniques are relevant in investment decision making.
Ho: Project
appraisal technique does not determine the cash flow accrue to the organization.
Hi: Project
appraisal technique does determine the cash flow accrue to the organization.
1.6 LIMITATION OF THE STUDY
Investment project appraisal relates to both public and private sectors of
the economy and they cover a wide range of the economic facets.
The areas to be covered in this work shall be limited to investment
appraisal under conditions of risk, uncertainty, inflation, taxation and
capital rationing as well as where the underlined objectives of the firm is
wealth optimization. The general over view merits and demerits as well as the
relative usefulness of each investment appraisal techniques will be weighted.
There are some unforeseen circumstances that will make the study not be
carried out extensively, some of which are, limited materials like finance,
time, text books materials, as well as epileptic power supply.
Finally the study shall be restricted to Mobil Oil Nigeria Plc.
1.7 SIGNIFICANCE OF THE STUDY AND
JUSTIFICATION FOR INVESTIGATING IT.
It is important for management of various organizations to evaluate
projects to be embarked on.
Also the study should emphasis on techniques to be used in investment
evaluation.
The study will enhance the minimization of risk associated with project.
The study will help to know the decision making in the short term or long term
investment.
The study will highlight the various different conditions to use in
investment decision making.
The study stimulates the forecasting model for project and variations in
estimate of cost benefits and timing of events.
1.8 DEFINITION OF TERMS & CONCEPTS
In order to facilitate easy and better understanding of this project work, the
definitions of certain terms that feature prominently are given below:
Appraisal Techniques
These are technique that companies the traditional techniques and the discounted
cash flow techniques.
Traditional Techniques
These methods ignore the time value of money and to that extent, they are
considered to be theoretically weak and they will not necessarily lead to the
maximization of the market value of ordinary shares.
Payback Period
Payback period is the time taken in years for a project to recover its
initial investment. Payback period can be computed dividing the cash outlay by
the annual cash inflow that is Initial outlay
Accounting Rate of Return (ARR)
The accounting rate of return measure is based upon accounting profit, not
cash flow; it uses financial accounting profit after charging all financial
accounting expenses including depreciation.
Discounted Cash Flow Method
Discounted cash flow methods adjust for the timing of receipt and payment
and, therefore overcome one of the most serious problems of the accounting rate
of return and payback methods.
Net Present Value NPV
Is the value obtained by discounted all cash outflows and inflow of a
project by a chosen target rate of return or cost of capital.
Internal Rate a/Return (IRR)
The Internal rate of return techniques is a percentage discount rate used
in Capital Investment appraisal which brings the cost of project and its future
cash inflow into equality.
Profitability Index.
Profitability Index is the ratio of present value of project life to the
Initial Capital Outlay.
It is represented by PI = PV
Outlay
Net Terminal Value
Net terminal value is a compounded value of net present value of the life
of an asset
Risk
A risk is a situation where possible outcome or return cannot be estimated
with probability of occurrence.
Uncertainty
This is where no reliable data are available and estimate are purely
objective.
Mutually Exclusive Project
"If the acceptance of one of it precludes the acceptance of one or
more other proposals".
Time Value of Money
"This indicates that the value of money vary with time as a result of
such factor as inflation."
TQM
Total Quality Management occurs where there is defined culture of quality
awareness and quality improvement in every process, of the organization
activities.
Capital Shortage / Rationing
This is where a firm is unable to initiate all projects which are
apparently profitable because insufficient funds are available in subsequent
periods.
Single Period Capital Rationing
This is where there is a limit on the funds available now but where it is
anticipated that funds will be freely available in subsequent periods.
Multi - Period Capital Rationing
This is when the limitation of funds extends over a number of periods or
possibly indefinitely.
Divisible Projects
This is where the whole project or any fraction may be undertaken.
Invisible Projects
This is where the whole project might be undertaken or not all.
Activity
This is a task or job of work which takes time and resources.
Event
This is a point in time indicating the start or finish of activity or
activities.
Dummy Activity
An activity which does not consume time or resources but merely show a
logical relationship in a network.
Network
Is the combination of activities, during activities and events in logical
sequence according to the rules for drawing networks.
Annuity Present Value
This is present value of constant future amount receivable (or payable) at
a given rate over a period of time.
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