ABSTRACT
This project work centres on the “Role of an
accountant in project evaluation in the oil sector”. The objectives of this
research work are to know whether project evaluation process have a better cash
flow stream, to know what extent has project evaluation helped the oil sector
and finally know if project evaluation and selection has improved the sector.
In the course of this study, the researcher decided to use simple random
sampling. The population of the study consist of 200 management staff as well
as board of directors and a simple size of 100 was selected through random
sampling method. The primary data collected were analyse using table schedule
arithmetic differences in figure simple rate and also simple percentage. The
finding reveals that project evaluation is a strong instrument for obtaining
ivan from bank and other financial institutions. It further shows that the
accountant uses project evaluations in project selection to make best project
selection, in addition to choosing the best cash flow, it also provide the
accountant with the best investment
option in a company. Some of the recommendations are that the accountants
should carry out project evaluation in every industry. Also is that they are
advised to master the use of Net present value (NPV) technique in evaluating a
project since it improves the time value of money. Further research on the
topic is highly recommended as no knowledge is a waste.
TABLE OF CONTENTS
Title page
Approval page……………………………………………………………..…i
Dedication …………………………………………………....…………..…ii
Acknowledgement……………………………………….......…………..…iii
Abstract………………………………………........................…………..…iv
Table of contents………………………………………........................…….v
CHAPTER ONE
1.0 Introduction
………………………………………..........................…1
1.1
Background of the study ………………………………………......…1
1.2
Statement of problem………………………………........................…2
1.3
Objective of
the study…………………………………..................…3
1.4
Significance of the study………………………………...................…4
1.5
Research Question ………………………………............................…4
1.6
Formulation of Hypothesis……………………………....................…5
1.7
Scope of the study……………………………….............................…5
1.8
Brief history of shell petroleum development Company
of Nigeria Limited (SPDC) ………………………………...............................…5
1.9
Definition of terms ………………………………..........................
…7
CHAPTER TWO
2.0 Literature
Review ……………………………….......................... …..9
2.1
Research Question / Hypothesis theories…………………………..…9
2.2
Current literature in theories mode Hypothesis and Research Question
...11
2.3
The scope and nature of project evaluation ……………….………..13
2.4
Cash flow implication and project evaluation ………………………15
2.5
Corporate goal and investment decisions……………………………16
2.6
The Role of the Accountant in project evaluation…………………..18
2.7
The oil sector and project Evaluation……………………………….20
2.8
Summary of the literature review……………………………………21
CHAPTER THREE
3.0 Research
Methodology……………………………………………..25
3.1
Design of the study …………………………………………………25
3.2
Area of the study…………………………………………………….25
3.3
Population of the study……………………………..……………….25
3.4
Sample method…………………………………………………….25
3.5
Instrument for data collection ………………………..……………..26
3.6
Validity of Reliability ……………………………………………....26
3.7
Distribution and retrieval of instrument…………………………….27
CHAPTER FOUR
4.0 Data
presentation and Analysis ……………………………………29
4.1
Analysis of data……………………………………………………29
4.2
Test of Hypothesis ………………………………………………….32
CHAPTER FIVE
5.0 Summary,
conclusion and Recommendation………………………..41
5.1
Summary of findings …………………………………………..……41
5.2
Conclusion ………………………………………………………….41
5.3
Recommendation …………………………………………………...42
5.4
Limitations to the study……………………………………………...42
References………………………………………………..………….44
Appendix A ………………………………………………..………..46
Appendix B………………………………………………………….47
Questionnaires
……………………………………………..………..48
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY:
Project
evaluation is of dual approaches vis-à-vis project and evaluation. Project has
to do with investment decision which most of these decision have direct effect
in future profitability of the organization either because they will result in
an increase in revenue generation or they will bring about an increase in
efficiency and cost effectiveness.
In the other hand, evaluation has to
do with the analysis of the investment to see whether it will be worth while to
take decision on it to go ahead with project’s expenditure.
According to Aguolu, P.S.O (1997:6),
investment decision are the use of funds on long term asset. What is needs in
investment should be known before financing decision are to be taken. “A
peculiar aspect of these is that they involve future benefits which are in many
cases difficult to predict”. The investment decision of a firm are commonly
known as “capital budgeting or capital expenditure decision”.
Aguolu, P.S.O, (1997:70) “states that
capital budgeting decision is that financial decision which involves and
outlays of funds in the present time with the expectation of future returns
over a period of time”. He further sees project evaluation as one of the
capital budgeting processes.
On this note, the accountant plays the
role of evaluating the suitability and adaptation of the project in relation to
profit maximization.
Also in
evaluation, the project is expected to be measured on incremental basis what
determines. The acceptance of a project is it’s changes (positive in the firms
revenue, cost and tax strems). In contrast, cash flow that would be changed by
the investment should be degraded.
1.2 STATEMENT
OF PROBLEM
As
a technical and creative aspect of human endeavour, project evaluation requires
knowledge, experience and all the skills needed by a manager to perform job
effectively. The accountant’s competence in project evaluation during his
choice of a project for the organization is very significant.
In a free market economy, it is
generally delivered that the investors pays for an investments or intrinsic
value. The problem here is how can the accountant relate the future cash flow,
the expected returns and the degrees of risks associated with the investment to
the market economy.
Another problem the accountant may be
faced with is the calculation formula, he will effectively use the evaluation
formula so as to rationalize between theory and practice. These constraints
will help us to investigate into the failure of project or why project brings
in lower value of expected cash flow stream, even after being selected through
the modern method of project evaluation.
1.3 PURPOSE OF THE STUDY
Although the industry under study is a heavy and
capital intensive sector and hence require a large sum of money to invest in
any commitment of fund and such activities requires a thoroughful analysis to
ascertain the validity of such project and the profitability of cash flow
streasm. This work is aimed at
- Knowing the role of an accountant in
project evaluation and selection.
- Ascertaining
the extent that project evaluation has helped a corporation in maximizing the
benefits projects valuation and selection.
- To
ascertain the usefulness of project evaluation in determining the future cash
flow stream of project.
1.4 SIGNIFICANCE OF THE STUDY
The
importance of every research work is to contribute to the existing knowledge.
Therefore, this study will be important to entrepreneurs and managers of
corporations in that it will guide them in decision taking / making on
investments. Some of the importance also includes
- It
will benefit financial analysis as a source of data collection
- It will equally benefit students as a
research materials and other seekers of knowledge.
1.5 RESEARCH QUESTIONS
For
the purpose of these research, the researcher has decided to formulate some
research questions that will serve as a guide and they are as follows:
1. Does project evaluation process have a
better cash flow stream?
2. To what extent has projector evaluation
helped the oil sector?
3 Has
project evaluation and selection helped in improving the corporate health of
the organization.
1.6 FORMULATION OF HYPOTHESIS
From the
statement of the problems and objective of study, the following hypothesis are
formed.
Ho: Does
project evaluation process has better cash flow streams.
Hi: Does
project evaluation process have a positive cash flow streams.
Ho: Project evaluation and selection helps in
improving the corporate health of the organization.
Hi: project evaluation and selection have a
positive change in corporate health of the organization
1.7 SCOPE OF THE STUDY
The critical goals of any project evaluation is to
determine whether or not given projects are technically feasible, commercially viable
economically desirable, managerially sound and financially profitable. The main
trust is cost and benefit implications of the project.
1.8 BRIEF
HISTORY OF SHELL PETROLEUM DEVELOPMENT COMPANY OF NIGERIA LIMITED (SPDC)
The
shell petroleum Development Company of Nigeria,
(SPDC) is the largest oil and gas exploration and production company in Nigeria. It is
the operator of a joint venture in which NNPC holds 55 percent and AGIP 5
percent The company was granted an exploration license in 1983 and discovered
the first commercial oil field at Olvibiri in Niger-Delta in 1958 leading to
the export of oil in 1958. the federal government acquired 55 percent of the
company in 1973 forming the basic of the joint venture operation that persist
till today. The company assumed its present day name in 1979. the percent joint
operating agreement and memorandum of understanding were last revised in 1991.
Today,
SPDC products are almost half of the country’s oil form more than 90 oil fields
in the Niger Delta area. it also supplies 95 percent of the country’s
commercial gas and its oil mining lease
area of 31,000 square kilometers containing more than half the country’s oil
and gas reserves. The sale of the company’s operation is massive involving an
infrastructure of 6200 kilometers of pipeline, more than 100 wells, 87
production stations, 7 gas plants and two large oil terminals at forcados and
Bony. The company is divided into two divisions, which are based in Warri in Delta State
and Port-Harcourt in Rivers state with a small corporate centre in Lagos, these division operate with a high degree of
autonomy and are running in each by a general manager who reports to the
managing director in Lagos.
SPDC has about 5000 staff of which 95 percent are Nigerians, the majority form
the oil producing areas. In addition the company has another 80,000 contract
staff mostly Nigerians.
SPDC
supports a future development and
progress for communities in the areas of operations and its aim is to
work along side all communities in harmony. The company’s social investment
programme dates back to the Igbo’s when it launched an agricultural initiative
in Ogboni area. this spread out the Niger-Delta and beyond not only helping
farmers by improving crop varieties and farming technique by setting them up in
business through co-operatives. More recently, SPDC has been increasingly
involved in development project in the fields of health educated and vocational
training linking up with non-governemtnal organisatios, which have expertise in
th3ese specialist areas. The company’s health progroamme involves refurbishing
and re-equipping existing rural hospitals. SPDC also grant scholarship each
year to students from oil producing communities and sponsors science teachers
in rural schools in addition, the company is running vocational courses to
unemployed youths to help them acquire skilsl set-up their own small business.
all this, in addition to producing basic amenities including water schemes,
roads, school, building and clinics etc.
1.9 DEFINITION OF TERMS
PROJECT: Project simply means commitments of
financial resources with future benefit expectation.
EVALUATION: It is the process fo analyzing the
investment to see whether it will be found worth while to take decision on it
to go ahead with the project expenditure.
CAPITAL BUDGETING: By this, it means the
process of planning or purchase of assets whose returns are expected to
continue beyond one year.
SPDC: Shell
petroleum redevelopment Company of Nigeria
PROJECT EVALUATION: This means analyzing a given
project which has to do with investment decision. To see whether it will be
profitable to go ahead with project expenditure.
ACCOUNTANT: An accountant is seen as a manager
who uses the accounting information to make financial decisions. In modern
computers, an accountant makes uses of computer application in the computation
process of accounting work for effectiveness of efficiency of accounting
information .
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