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 will assertion the extent to which capital budgeting evaluation techniques are used by the Nigerian breweries in evaluation of the capital budgeting project. And consider whether well evaluated project will yield adequate return for investors as well as the other factors, whether 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 collection at the course of the study. Results of the study shows 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 CONTENTS
CHAPTER ONE
1.0 INTRODUCTION - - - - - - 1
1.1 BACKGROUND OF THE STUDY - - - - 1
1.2 STATEMENT OF THE PROBLEM - - - - 1
1.3 OBJECTIVE OF THE STUDY - - - - - 1
1.4 RESEARCH QUESTIONS - - - - - 1
1.5 SCOPE OF THE STUDY- - - - - - 1
1.6 SIGNIFICANCE OF THE STUDY - - - - 1
1.7 LIMITATION OF THE STUDY - - - - - 1
1.8 DEFINITION OF TERMS - - - - - 1
CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE - - - 2
CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY - - 3
3.1 RESEARCH DESIGN - - - - - - 3
3.2 AREA OF STUDY - - - - - - - 3
3.3 POPULATION OF STUDY - - - - - 3
3.4 SOURCE OF DATA - - - - - - 3
3.5 SAMPLING METHOD - - - - - - 3
3.6 RESEARCH INSTRUMENT - - - - - 3
3.7 VALIDITY AND RELIABILITY OF RESEARCH
INSTRUMENT - - - - - - - 3
3.8 METHOD OF INVESTIGATION - - - - 3
CHAPTER FOUR
4.0 PRESENTATION AND ANALYSIS OF DATA - - 4
4.1 PRESENTATION OF ANALYSIS DATA - - - 4
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, CONCLUSION
AND RECOMMENDATION - - - - - 5
5.1 SUMMARY OF FINDINGS - - - - - 5
5.2 CONCLUSION - - - - - - - 5
5.3 RECOMMENDATION - - - - - - 5
BIBLIOGRAPHY - - - - - - - 5
APPENDIX / REFERENCES AND QUESTIONNAIRE - 5
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Every business firm normally will like to known how it perform over a period of time, this lending to a preparation of profit and loss statement.
They also ask about their position at a particular point in time, which lead them to proper balance sheet, finally will like to know where they are heading to which led to the preparation of budget.
Budgeting is a term that is used by Marrete A.J and Sykes Allen (1974) the finance and analysis of capital project London, longman, long, confused budgeting with planning “A budget is a 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 budget therefore can be defined as a statement of intention qualified in monetary term by J.E Weston & Brighan in budgeting there are types of budged prepared by firms. Such budget includes capital budget, sales 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 assets. Many firms prepares capital budget today. Its was originated in the United State of America (U.S.A) in America it was applied by all firms before the Second War According to Western J.F and E.F Brigham (1998)101: 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 that prepare budget for its capital expenditure. This is however not easy as it is fought with a lot of problems.
1.2 STATEMENT OF PROBLEMS
The main purpose of setting up a private firm is to achieve enough sales revenue that will cover the fixed and the variable cost as well as leave some profit to justify its existence. Nigeria brewery limited being a private enterprises involve a brewery beer that has the objective of making big, huge profit. Brewery all over Nigeria witness heavy return on their investment due to the quality of the product to neighbouring African countries as well as the high consumption rate of beer in the country. This was before the year 1982.
The introduction of many economic measure of after the year 1982 aim at revamping the nations live economy brought with many problems with which the brewery industries is not left out. In order to produce, firms in the brewery industry (including the Nigerian breweries limited) acquires fixed asset as well as raw material. This acquisition is based on the expected demand. The demand for beer cannot now be fairly estimated because of the general rises in the price. General rises in the price of beer has made the consumer to shift their demand to other goods as necessity thud decreasing the demand for beer. The uncertainty surround the continuance of that rate of which the demand for beer decrease has become of a problem encountered by the capital budgeted especially by the Nigerian breweries limited since the capacity of production is always affected by change in demand of the product.
Apart from the capital budgeting, problem caused by the uncertainty is the change in demand, there is also a problem of tariff and import restriction on the importation of fixed asset and the spare parts.
The singular problem has helped in no small measure in fuelling the height of the problem encountered by the firm. It has also made firm like the Nigerian breweries look for alternative way of obtaining fixed asset necessary for its production and operation. Even when this fixed asset are sources from them it often increase the price for them as a result of the impact tariff restriction. The uncertainty surrounding this has made a capital budget problem increase in price for fixed asset as a result for import restriction and the small nature of the financial capacity had made firms like the Nigerian breweries limited to rank the project they wish to embark on. In encountered in the selection of the project of the human problem in the organization, which is to be embarked upon. There is always problems of appropriate selection that will be peculiar to a given project. As encountered, the project of selecting the human factors, which is fidelity of the state of mind of the individual in charge of the capital budgeting. Because o the small nature of the financial ability. Nigerian breweries 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 charges interest on the money that they lend out.
Interest charges fluctuated with the changes in the economic setting. Due to the dynamic nature of the economy with consequent effect on the interest rate, it is the problem making last benefit analysis necessary in the capital budgeting.
Even when the able problem are solved to a great extent, there remains the problem of obtaining foreign exchange necessary to remits the exporters change rate. The rate is never stable. The uncertainty include in the makes a problems for capital budgeting.
1.3 RESEARCH QUESTIONS
To achieve the objectives of the study, the researcher would seek to provide answers to the following questions:
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