CAPITAL BUDGETING IN THE PRIVATE SECTOR (A CASE STUDY OF THE NIGERIAN BREWERIES)
CAPITAL BUDGETING IN THE PRIVATE SECTOR
(A CASE STUDY OF THE NIGERIAN BREWERIES)
Capital budgeting involve basically the estimation of the cash flow, estimation of the expected cash return and application of evaluation techniques in making investment decision.
This study looked into the extent to which the Nigerian breweries do carry out proper evaluation of capital project before making their investment decision as well as the extent in which other factors are consider in the decision process.
The study wills assertion the extent to which capital budgeting evaluation techniques are used by the Nigerian breweries in evaluation the capital budgeted projects. And consider whether well-evaluated project will yield adequate return for investors as well as the other factor, which influence the selection of the project to be invested in.
In arriving at my conclusion, interview were conducted and statistical test such as the chi-square were used in analyzing data collected at the course of the study.
Result of the study show that the evaluation of the capital project by the management of the Nigerian breweries is not normally carried out effectively before making their investment decision and that a well evaluated project will normally yield an adequate return on investment.
Based on the findings, some recommendation has been put forward for consideration in chapter five.
TABLE OF CONTENT
Table of content
1.2 Statement of the problem
1.3 Objective of study
1.4 Significance of study
1.5 Statement of the hypothesis
1.6 Scope of the study
1.8 Definitions of terms
2.0 Review of the related literature
2.1 Meaning of capital budgeting decision
2.2 Importance of capital budgeting decision
2.3 Types pf capital budgeting decision
2.5 Analysis of capital project
2.6 Deterring the cash flow
2.7 Techniques used in capital budgeting decision
2.7.1 Payback method
2.7.2 Net present value
2.7.3 Internal rate of return
2.7.4 Accounting rate of return
- Ranking of investment proposal
3.1 Research design and methodology
3.2 Source of data
3.4 Secondary data
3.5 Sample used
3.6 Method of investigation
4.1 Data analysis and interpretation
4.2 Data presentation and analysis
4.3 Test of hypothesis
SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of the findings
APPENDIX / QUESTIONNAIRE
Every business firm normally will like to know how it perform over a period of time thus leading to a preparation of profit and loss statement. They also ask about their position at a particular point in time, which lead then to proper balance sheet. Finally they will like to know where they are leading which led to the preparation of budget.
Budgeting is a term that used by long man. Long confused budgeting with planning. a beget is part of a plan. A plan can be expressed in monetary and non-monetary terms. Any plan that is qualified in a monetary term is a budget . a bugeti therefore can be succinctly define as a statement of intention qualified in monetary terms.
In budgeting there are types of budget prepared by frims . such budget include capital budget, sale budget, cash budget and so on. The process of preparing capital budget is called budgeting. Capital budget are long-term budget made for acquisition and expansion of fixed asset. Many firms prepares capital budget today. It was originated in the united state of America (U.S.A) in America it was applied by all firm before the second war. After the second war, many firm saw the need to plan for capital expenditure, hence it is prevalence today.
The Nigerian brewery limited and other beverage are not left out in the train of firm of firm that prepare budget for its capital expenditure. This is however not easy as it is fought with a lot of problem.
1.1 STATEMENT OF PROBLEM
The main purpose of setting up a private firm is o archive enough sale revenue that will cover the fixed and the variable cost as well as live some profit top justify its existence. Nigerian brewery limited being a private enterprise involves a brewery beer has the objective of making big huge profit. Brewery all over Nigeria witness heavy rerun on their investment due to the expert of their product to neighboring African countries as well as the high consumption rate of beer in the country. This was before the year 1982.
The introduction of many stringent economic measure after the year 1982 aim at revamping the nations live economic brought with many problem with which the brewery industries is not left out. In the order to produce, firm in the brewery industry (* including the Nigerian brewery limited) acquire fixed asset as well as raw material. This acquisition is abased on the expected demand. The demand for beer cannot now be fairly estimated because of the general rises in the price. General rise in the price of beer has made the consumers to shift their demand to other goods as necessity thud decreasing the demand for beer. The uncertainty surrounding the continuance the rate at which the demand for beer decrease has become of the problem encountered by the capital budget especially by the Nigerian breweries limited since the capacity of production is always affected by change in the demand of the product.
Apart form the capital budgeting problem caused by the uncertainty in the change in the demand, there is also a problem of tariff and import restriction on the importation of fixed asset and the spar parts. The singular problem has help in no small measure in fuelling the height of the problem encountered by the firm. It has also made from like the Nigerian breweries look for alternative way of obtaining fixed asset necessary for its production and operation. Even when this fixed asset are source from the , it often increased the price for them as a result of the import tariff restriction,. The uncertainty surrounding this has made a ca0tial budget problem.
Increase in price for fixed asset as a result for import restriction and the small nature of the financial capacity had made firm like the Nigerian breweries limited t rank the project hey wish to embark on. . In encountered in the selection of the project of the human problem in the organization, which is to be embark upon. There is always problem of appropriate selection that will be peculiar to a given project. As encountered in the project is the selection of human factor, which is fidelity of the state of mind of the individual in charge of the capital budgeting. Because of the small nature of the financial ability. Nigerian brewery limited took to external source of financing in its capital project. The external source of financing include the commercial bank, trade creditors. And some financial institution. Bank and other financial institution charges interest on the money that they lend out. Interest changes fluctuated with the changes in the economic settings. Due to the dynamic nature of he economy with consequent affect on the interest rate, it is problem making cost benefit analysis necessary in the capital budgeting.
Even when the able problem are solved to a great extent their remain the problem obtaining foreign exchange necessary to remit the exporters change rate. The rate is never stable. The uncertainty included in this makes a problem for capital budgeting.
PURPOSE OF THE STUDY
The purpose of the study were to find out the following
- Ascertain the extent to which capital evaluation techniques are used by the Nigerian breweries management in evaluating their projects
- Ascertain whether well evaluated project will yield the adequate return for the investor
- Determine the other factor, which influence the selecting of project to be invested in.
- The capacity of the budgeting process in the Nigerian brewery limited
SIGNIFICANCE OF THE STUDY
A lot of factor makes capital budgeting very important in the productive and the commercial fair of any economy. This factor include lose of flexibility. Some of the information on this were taken form essential of management finance by J.C Wilson and E.A Brighton. After the commitment of fund to project, the relationship between asset expansion and sale proper phasing the availability for the capital asset and the quality of the asset purchased, satanically expenditure on which fund are not automatically available and the failure of a firm as a result of too little equipment.
Capital budget is an important aspect of strategic decision involving the financial management in the purchase of the fixed asset, firms commit large amount of capital.. The result of his capital commitment continue over a long time with subsequent lose of flexibility in decision-making. Apart from lose of flexibility in the long age to event, expansion of the fixed asset is always related to the future sale and future sale are also forecast. Acquisition of the an asset with a five year economic live span means a forecast of sale to be made over the same period of time. Therefore, failure to forecast accurately result in the under-investment of the fixed asset.