1.1 Background Of The Study
Every business firm normally will like to know how it performs over a period of time thus leading to a preparation of profit and loss statement. They also ask about their position at a particular point in time, which leads them to proper balance sheet. Finally, they will like to know where they are leading which leads to the preparation of budget. A budget is a part of a plan which can be expressed in monetary and noon-monetary terms. In budgeting, there are types of budgets prepared by firms. Such budgets include capital budget, sales budget, and cash budget etc.
The process of preparing capital budget is called budgeting. Capital budget are long term budget made for acquisition and expansion of fixed asset. Capital budgeting originated from the United States of America (USA) in America, it was applied by all firm before the second war. After the second war, many firm saw the need to plan for its capital expenditure. This is however not easy as it is fought with a lot of problem.
1.2 Statement Of The Problem
The main purpose of setting up a private firm is to achieve enough sale revenue that will cover the fixed and the variable cost as well as having profit to justify its existence.
Most private sectors have the objective of making huge profit. The introduction of many straight economic measure after the year 1982 aim of revamping the nations live economy brought with it many problems with the private sectors were not left out. In order to produce, firms and other private industries acquire fixed asset as well as raw material. This acquisition is based on the expected demand.
The uncertainty surrounding the rate at which the demand for goods decrease has become of the problem encountered by the capital budget especially by the private sectors since the capacity of production is always affected by change in the demand of the product and services.
Apart from the capital budgeting problem caused by the uncertainty in the change in the demand, there is also a problem of tariff and import restriction in the importation of fixed asset and the spare parts. This problem has made some private companies to look for alternative way of obtaining fixed asset necessary for its production and operation. There is always a problem of appropriate selection that will be peculiar to a given project. As encountered in the project is the selection of human factor, which is fidelity of the state of mind of the individual in charge of the capital budgeting.
1.3 Purpose Of The Study
The purpose of the study is to find out the following;
- Ascertain whether well evaluated project will yield the adequate return for the investor.
- Ascertain the extent to which capital evaluation techniques are used by the private sectors management in evaluating their project.
- Determining the other factor which influences the selecting of project to be invested in.
- Knowing the capacity of the budgeting process in the private sector.
1.4 Significance Of The Study
Capital budgeting is an important aspect of strategic decision making involving the financial management in the purchase of fixed assets.
The outcome of the research work will be of significance to the management of private sectors who are faced with capital budgeting decision problem. It will also be of significance to the investor who wishes to invest in capital project.
Finally, it will equally be important to other researchers and scholars who may wish to carry out further research on the subject matter or on the related topic.
1.5 Scope Of The Study
The study will examine the capital budgeting techniques of the private sectors in Nigeria and will be able to establish if there is any relationship between the budgeting techniques adopted by the firms.
1.6 Limitation Of The Study
Limitations abound in this type of study. So far, the limitations encountered are as follows;
1. Access To The Documents:
Experience has shown that apart from carrying out academic research in firms, it is also difficult to gain access to the document. This is considered impediment to the study.
2. Time Constraint:
Unlimited study would have been considered if there were enough time for that. Time constraint was the most inhibiting factor which otherwise would have enabled on extensive pursuit of knowledge in this is of interest in capital budgeting.
3. Insufficient Information:
Documents wanted in order to aid the research work were not all obtained because of the interviewer's fear for letting out the company's secret. Some oral information was difficult to get.
1.7 Definition Of Term
Capital Budgeting: This is a long-term plan made for expenditure necessary to buy fixed asset for the production of goods and services.
Cash Flow: This simply means a flow of cash into a firm such as revenue from sale.
Finance: This is the term used to denote the acquisition and expending of fund to meet an economic unit objective.