Capital budgeting practices: a survey in the selected Indian manufacturing firms

Abstract

The purpose of this study is to investigate the capital budgeting practices prevalent in the selected Indian manufacturing firms. The study also determines the factors which sample firms consider for the ascertainment of their cost of capital. Further, the study throws a light on some of the issues which led to the ignorance of scientific evaluation techniques of project appraisal. The study was conducted with the help of survey method. The findings of the survey show that payback period method and NPV method are the two most popular techniques of capital budgeting in the Indian manufacturing sector. Although, the overall weightage of the non-discounting technique is more when compared to the discounting methods. It was also found that WACC is the most used method to determine the cost of capital in the sample firms. Thus, this study provides a useful insight of capital budgeting practices of Indian manufacturing firms. The study will be helpful for investors who are looking to invest in Indian manufacturing sector under the Make in India program and it is the first study of its kind which covers the ignorance aspect of the capital budgeting techniques.