Classification of CFOs experience
CFO/finance directors experience (years) | No. of company ( ) | (%) |
---|---|---|
Less than 10 years | 8 | 20.51 |
11–20 years | 19 | 48.72 |
More than 20 years | 12 | 30.77 |
Total | 39 | 100 |
Classification of firms’ size of capital
Size of the capital budget | No. of company ( ) | (%) |
---|---|---|
Less than 10 million | 8 | 20.51 |
10–100 million | 10 | 25.64 |
100–200 million | 14 | 35.89 |
200–300 million | 5 | 12.82 |
More than 1 billion | 2 | 5.13 |
Total | 39 | 100 |
Company’s planning horizon for capital expenditure budget
Planning horizon for capital budget (years) | No. of company ( ) | (%) |
---|---|---|
1 year ahead | 9 | 23.08 |
2 years ahead | 7 | 17.95 |
3 years ahead | 14 | 35.89 |
4 years ahead | 5 | 12.82 |
5 years or more | 4 | 10.26 |
Total | 39 | 100 |
Purpose of the firms’ capital budgeting
Purpose of investment | No. of company ( ) | (%) |
---|---|---|
Expansion into new business | 7 | 17.95 |
Investing new facilities | 6 | 15.38 |
New product development | 0 | 0 |
Expansion of existing business | 18 | 46.15 |
Diversification | 0 | 0 |
Merger and acquisition | 3 | 7.69 |
Equipment replacement | 5 | 12.82 |
Modernization | 0 | 0 |
Enjoying new technology | 0 | 0 |
Research and development | 0 | 0 |
Training and development | 0 | 0 |
Any other capital project | 0 | 0 |
Total | 39 | 100 |
Purpose of the firms’ capital budgeting, primary vs. secondary
Capital budgeting techniques | Primary method | Secondary method | Neither | |||
---|---|---|---|---|---|---|
No. of company | (%) | No. of company | (%) | No. of company | (%) | |
Personal judgment | 16 | 14 | 35.89 | 9 | 23.08 | |
Payback period | 21 | 18 | 0 | 0 | ||
Discounted payback period | 6 | 15.38 | 12 | 30.77 | 21 | 53.85 |
Accounting rate of return | 5 | 12.82 | 12 | 30.77 | 22 | 56.41 |
Net present value (NPV) | 28 | 11 | 28.21 | 0 | 0 | |
Internal rate of return | 19 | 16 | 41.03 | 4 | 10.26 | |
Profitability index (PI) | 3 | 7.69 | 17 | 19 | 48.72 | |
MIRR | 4 | 10.26 | 15 | 38.46 | 20 | 51.28 |
Use/preference of capital budgeting techniques for the project appraisal
Capital budgeting methods | Never | Rarely | Sometimes | Often | Always | Mean | Rank |
---|---|---|---|---|---|---|---|
Personal judgment | 15.38% | 12.83% | 15.39% | 15.38% | 41.03% | 3.54 | 4 |
6 | 5 | 6 | 6 | 16 | |||
Payback period | 05.13% | 0% | 12.83% | 35.89% | 46.15% | ||
2 | 0 | 5 | 14 | 18 | |||
Discounted payback period | 23.07% | 5.13% | 17.95% | 23.08% | 30.77% | 3.33 | 6 |
9 | 2 | 7 | 9 | 12 | |||
Accounting rate of return | 43.59 | 23.08% | 15.39% | 10.26% | 7.69% | 2.15 | 8 |
17 | 9 | 6 | 4 | 3 | |||
Net present value (NPV) | 0% | 0% | 7.69% | 17.95% | 74.36% | ||
0 | 0 | 3 | 7 | 29 | |||
Internal rate of return | 0% | 2.56% | 10.26% | 38.46% | 48.71% | ||
0 | 1 | 4 | 15 | 19 | |||
Profitability index (PI) | 15.40% | 30.77% | 12.83% | 23.08% | 17.95% | 2.97 | 7 |
6 | 12 | 5 | 9 | 07 | |||
MIRR | 17.95% | 5.13% | 20.51% | 23.08% | 33.33% | 3.48 | 5 |
7 | 2 | 8 | 9 | 13 |
Calculating methods of cost of capital
Methods of derive the cost of capital | Never | Rarely | Sometimes | Often | Always | Mean | Rank |
---|---|---|---|---|---|---|---|
Weighted average cost of capital (WACC) | 2.56% | 7.69% | 12.82% | 23.08% | 53.85% | ||
1 | 3 | 5 | 9 | 21 | |||
CAPM model | 10.26% | 23.08% | 35.90% | 7.69% | 17.95% | 2.97 | 3 |
4 | 9 | 14 | 5 | 7 | |||
Cost of debt (CD) | 17.95% | 12.82% | 20.51% | 33.33% | 15.38% | ||
7 | 5 | 8 | 13 | 6 | |||
Cost of equity (CE) | 23.08% | 17.95% | 28.21% | 17.75% | 7.69% | 2.79 | 4 |
9 | 7 | 11 | 7 | 5 | |||
Arbitrary rate (AR) | 46.15% | 35.90% | 7.69% | 5.13% | 0% | 1.77 | 6 |
18 | 14 | 5 | 2 | 0 | |||
Average historical return | 43.59% | 38.46% | 10.27% | 7.69% | 0% | 1.82 | 5 |
17 | 15 | 4 | 3 | 0 |
Factors influencing the choice of capital budgeting methods
Factors influencing the choice of capital budgeting methods | Not at all important | Not that important | Neutral | Important | Very important | Mean | Rank |
---|---|---|---|---|---|---|---|
Finance theory | 7.69% | 10.26% | 12.82% | 30.77% | 38.46% | 3.82 | |
3 | 4 | 5 | 12 | 15 | |||
Experience and competency | 5.13% | 7.69% | 15.38% | 28.21% | |||
2 | 3 | 6 | 11 | ||||
Informal rule of thumb | 41.03% | 23.08% | 17.95% | 10.26% | 7.69% | 1.72 | |
16 | 9 | 7 | 4 | 3 | |||
Importance of the project | 0% | 12.82% | 15.38% | 23.08% | |||
0 | 5 | 6 | 9 | ||||
Easy understandability | 20.51% | 19.95% | 28.21% | 17.95% | 15.38% | 2.90 | 5 |
8 | 7 | 11 | 7 | 6 | |||
Top management familiarity | 7.69% | 10.26% | 12.82% | 30.77% | 3.74 | 4 | |
3 | 4 | 5 | 12 |
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