THE APPLICATION OF INVESTMENT APPRAISAL TECHNIQUE FOR PROJECT SELECTION IN NIGERIA COMPANIES

TABLE OF CONTENTS

Declaration.. iii

Certification.. iv

Dedication.. v

Acknowledgementvi

Table of Contents. vii

CHAPTER ONE.. 1

1.0 Introduction.. 1

1.1 General Introduction.. 1

1.2 Statement of Problem.. 2

1.3 Objective of the Study. 3

1.4 Significance of the Study. 3

1.5 Hypothesis. 4

1.6 Scope of the Study. 5

1.7 Limitations of the Study. 5

1.8 Plan of the Study. 5

CHAPTER TWO.. 7

2.0 Literature Review.. 7

2.1 Introduction.. 7

2.2 Nature of Investment7

2.2.1 Importance of Investment Decisions. 10

2.2.2 Classification of Capital Investment Projects. 11

2.2.3 The Investment Decision Process. 14

2.3 Investment Appraisal Techniques. 17

2.4 Investment and Financing Decisions. 26

2.4.1 Complex Investment Decision.. 27

2.4.2 Project with different Lives. 27

2.4.3 Investment Decision under Inflation.. 28

2.4.4 Replacement of an Existing Asset29

2.4.5 Investment Timing Duration.. 30

2.4.6 Investment Decision under Capital Rationing. 30

2.4.7 Types of Capital Rationing. 31

2.4.8 Uses of Profitability Index in Capital Rationing. 33

2.4.9 Nature of Risk. 33

2.5 Conventional Techniques to Handle Risk. 34

2.5.1 Statistical Techniques of Handling Risk. 36

2.5.2 Probability. 36

2.5.3 Risk and Uncertainty. 36

2.5.4 Capital Expenditure. 37

2.5.5 Capital Expenditure Planning Phases. 38

2.5.6 Methods of Evaluation.. 40

2.6 Problems of Capital Investment Appraisal Techniques. 44

2.6.1 The Accountants Role in Investment Appraisal45

2.6.2 The Prospect of Capital Investment Appraisal Techniques. 46

2.7 Worked Example. 47

CHAPTER THREE.. 51

3.0 Research Methodology. 51

3.1 Research Design.. 51

3.2 Data Collection Method. 51

3.3 Reliability of Date. 53

3.4 Limitations. 54

3.5 Testing Research Hypothesis. 54

CHAPTER FOUR.. 56

4.0 Data Presentation and Analysis. 56

4.1 Introduction.. 56

4.2 Data Presentation.. 57

4.3 Test for Hypothesis. 64

CHAPTER FIVE.. 69

5.0 Summary of Findings, Conclusion, Recommendation and Areas for Further Studies 69

5.1 Summary and Findings. 69

5.2 Conclusion.. 71

5.3 Recommendations. 72

5.4 Areas four further Studies. 74

Bibliography. 75

Appendix. 77

CHAPTER ONE

1.0 Introduction

1.1 General Introduction

In Nigerian Companies, investment appraisal techniques refers to those traditional and scientific tools that management of a business organisation make use of as a guide in accepting or rejecting an investment opportunity with a view of choosing among them the most viable and desirable one. An efficient allocation of capital is the most important finance function in the modern times. It involves decisions to commit the firms funds to the longterm assets; such decisions are of a considerable importance to the firm since they tend to determine its value by influencing its growth, profitability and risk.