CHAPTER ONE
INTRODUCTION
1.1 Background to the study
Investment appraisal technique plays crucial roles in management decision. Management decision making involves the process of identifying, evaluating and selecting among projects that are likely to have a significant impact on the organizations competitive advantage. More so specifically, the decision will influence what the organization does (i.e. the product and services of the organization), where it does it (i.e. the location of the organization) and how it does (i.e. work practices or operating process of the organization).
Investment decision making process is arguably one of management greatest challenges. There is a critical need to get these decisions right, if decision proves successful, the firm reaps major strategic and operational advantages and if decision is wrong, then an important opportunity is forever lost (by the virtue of the firm’s failure to invest when it should have) or it has needlessly squandered substantial resources by virtue of making fruitless investment. Thus, the various investment appraisal techniques such as the Net Present Value (NPV), Accounting Rate of Return (ARR), Internal Rate of Return (IRR) etc are tools that management can make use to determine the viability, profitability and the long term survival of the investment in relation to the objectives of the organization. This appraisal technique will help the management team to factor in variables and see what the possible outcomes are, should investment be made in such project. With the aid of these investment appraisal techniques, management of organizations will make decisions that are productive.
Therefore, this research is carried out to assess the impact of the various investment appraisal techniques or tools on management decision making as regard capital budgeting.
1.2 Statement of the research problem
In many organizations, investment decision making is a big challenge, as most organization invest in projects that will bring returns in the long term basis, so as to increase shareholders wealth. Investment requires capital which is scarce and tightly controlled resource. Investment decision making means making decision on how to allocate capital to a project, this can also be termed as capital budgeting. A way of assessing, this critical decision is the use of various investment appraisal techniques which will ensure that a decision making will not only be reliable but accurate. However, firms substantially ignore various techniques open to them to appraise various investment opportunities and as a result, commit their limited resources to wrong investment opportunity that is capital in nature. According to capital – investment.co.uk2015, Some of the factor that affect capital investment decisions include;
The outlook of management, Opportunities which are created by technological changes, strategy of the competitor, Cash flow budget, Fiscal incentives, Market Forecast and;