Journal of Business Studies, Vol. XXXVII, No.

1, April 2016

An Overview of the Capital Budgeting Techniques Practiced by

the Companies of Dhaka Stock Exchange Limited

Mohammad Rezaul Islam*

Asma Akter Shelly**

Abstract: This study explores the capital budgeting techniques used by Bangladeshi
companies in evaluating capital investment projects. For this study data were collected from
the listed companies of Dhaka Stock Exchange Limited (DSE). The findings of the study
reveal that the Net Present Value (NPV) is most preferred technique for evaluating
investment projects in terms of profitability while sensitivity analysis is used as a technique
for assessing risk of the project. It is also documented that managers generally use more than
one technique for evaluating investment projects. However, they emphasize more on the
result of Net Present Value (NPV) to select the right one from the conflicting results. In this
study the return on investment (ROI) and net profit margin are also observed as the other
determinants of evaluating capital investment projects.
Keywords: Capital Budgeting, Net Present Value (NPV), Internal Rate of Return (IRR), Pay
Back Period (PBP), Discounting Payback Period (DPBP), Profitability Index (PI),
Accounting Rate of Return (ARR).

Introduction
Investment decisions of a company are analyzed in the corporate capital budgeting. Whether there
exist any acceptable capital investment evaluation techniques of the individual company is still an
unresolved issue. Corporate capital budgeting shed-light on the long term investment decision of a
company.
Company can collect fund from various sources along with financial market and uses their fund to
invest in different projects to expand the business or to keep intact its status quo in the competitive
market. Combined success of different projects, whether new or existing, can ensure the wealth
maximization of a company. Companies must meticulously examine the project before using the
scarce resources. In this case, capital budgeting process helps to identify and select investments in
assets which are expected to produce benefits over more than one year. Over the years different
capital budgeting evaluation techniques have been evolved by finance theorist to analyze the
optimal investment decisions to be taken by the corporation. Few empirical studies have been
done on the application of capital budgeting decisions for different types of companies. Moreover,
few empirical studies have extended the analysis of capital budgeting techniques in the
international sector. The role of capital budgeting techniques in determining an optimal investment
decisions is the focus of this paper. In particular, we attempt to extend capital budgeting research
for different types of companies taken in Bangladesh.

*
Lecturer in Accounting, School of Education, Bangladesh Open University, Gazipur.
**
Lecturer in Finance, School of Business, Bangladesh Open University, Gazipur.
188 Journal of Business Studies, Vol. XXXVII, No. 1, April 2016

This paper is organized in the following manner so as to show how capital budgeting techniques is
used by Bangladeshi companies. The first section specifies the scope and objectives of the study.
In section two, previous studies have been outlined. Section three deals with the methodology and
findings of results have been given in section four. Concluding comments are contained in section
five.
1.0 Scope and Objectives of the Study
The scope of the study is very big. It covers many aspects of the capital investment decisions such
as balancing, modernization, replacement and expansion. The evaluation of these investment
decisions is the key to survival of a corporation. So the study covers a broad spectrum. The present
study will try to concentrate on the issues indentified and will try to cover all these issues. In doing
so, the capital budgeting techniques of Bangladeshi Companies will be the focal point of
consideration. So the main objectives of the study will be as follows -
1. To identify different capital budgeting techniques used by Companies listed in Dhaka
Stock Exchange Limited in evaluating investment project.
2. To identify the nature of capital budgeting project and the evaluation process involved in
different projects.
3. To identify the application of techniques for appraising investment projects.
4. To identify what discount rate and others factors Companies usually use in Capital
Budgeting while making investment decision.
5. To identify the problem of capital budgeting techniques used by Companies and to
provide suggestive measures.
2.0 Conceptual Framework and Literature Review
In corporate finance many techniques are used to evaluate investment projects. There are six
techniques that are commonly used to evaluate investment projects or investment in long-term
assets: i) Payback Period, ii) Discounted Payback Period, iii) Net Present Value, iv) Profitability
Index, v) Internal Rate of Return, vi) Average Rate of Return. The choice of techniques may vary
among company size, category, and industry. Project size may also play a role in choosing
techniques. Similar types of studied were done in different countries and those studies have been
used as a reference in conducting this research. Many other factors related with investment
evaluation process like constrain of techniques, preference among techniques, discount rate etc.
have also been incorporated in this study. This research is conducted with the aim of exploring the
use of various capital budgeting techniques to appraise investment projects by Bangladeshi
Companies.
Gitman and Forrester (1977) have conducted a survey on the popularity of techniques of capital
budgeting and the result of the survey indicated that IRR was the most popular (54.6 percent)
technique among the US finance managers. Their result indicates NPV is not used as the primary
An Overview of the Capital Budgeting Techniques Practiced by the Companies 189

tool of analysis; rather it is used as secondary tool of analysis. Danielson and Scott (2006) have
shown that “Gut feelings” and payback period method are the top tools for evaluating investment
decision in small company. Apap and Masson (2004) have carried out a survey on utility
Companies in US and found manager’s preference for payback period for evaluating their project.
Graham and Harvey (2001) have found in their study that 75 percent manager prefer NPV or IRR.
Bierman (1993) has got out 98 percent of his survey Companies’ preferred discounted cash flow
(DCF) techniques and among these techniques IRR was used more frequent than NPV. Petry and
Sprow's (1993) indicated about 90 percent of the Companies use NPV and IRR either as a primary
or as a secondary decision making tools. Anand (2002) has shown 85 percent of the respondents
from India prefer IRR as a very important and 65 percent respondents almost always use NPV.
Arnold and Hatzopoulos (2000) have conducted a survey on theory and practice gap in capital
budgeting in UK where they found that Companies in UK gradually shifted from Payback Period
method to NPV and IRR for investment project evaluation. They have indicated 97 percent large
Companies prefer to use NPV and 84 percent prefer IRR as investment appraisal tools. Chadwell-
Hatfield et al. (1997) have inquired about the techniques used by the US manufacturing company
and found that 72 percent managers used to prefer IRR as investment appraisal method whereas 65
percent preferred Payback period. They have found that US manufacturing managers do not
depend on only one technique; rather they use multiple techniques in project appraising.

According to Kester and Chang (1999), sensitivity analysis and scenario analysis have found to be
the most important tools for project risk assessment in Australia, Hong Kong, Indonesia, Malaysia,
Philippines and Singapore. According to Anand (2002) 90.1 percent managers in India use
sensitivity analysis and 61.6 percent managers use scenario analysis for accessing project risk.
Arnold and Hatzopoulos (2000) showed sensitivity/scenario analysis as the most widely (85
percent of Companies) used techniques to evaluate the risk and uncertainty. Graham and Harvey
(2001) have indicated in their research that highly levered Companies prefer sensitivity and
simulation analysis. However, Chadwell-Hatfield et al. (1997) found an inconsistent result
regarding risk analysis of US manufacturing company. Their survey results have indicated that
managers are not concern about the risk in capital budgeting expenditure as only 26 percent
managers consider downside risk is important and 49 percent manager consider the upside risk
associated with the project.

3.0 Methodology

3.1 Sample and Sampling Techniques

The population of the present study consisted of all companies listed in Dhaka Stock Exchange
Limited (DSE) on October, 2014 except banks and non-banking financial institutions, insurances
and mutual funds as they are beyond the scope of the present study. Thus target population comes
down to 175 companies divided into A-category (125), B-category (10), N- category (14) and Z-
categories (26) Companies. A random sample of 64 out of 175 Companies is used as sample units.
190 Journal of Business Studies, Vol. XXXVII, No. 1, April 2016

The formula of Yamane (1967) was used to determine the sample size for this survey with a 95
percent confidence level.

n= Where, N = Population; n = sample

3.2 Data Collection Techniques and Instruments

To materialize the objectives of the study, data have been collected from both primary and
secondary sources. A structured and open-ended questionnaire has been developed after thorough
consultation with the experts in this area to collect the primary data. Comprehensive reviews of
existing literature facilitate to develop the option in multiple-choice and ranking type questions. A
pilot study was conducted after developing the draft questionnaire where a group of finance
managers gave their feedbacks and suggestions and those are also incorporated in finalizing the
questionnaire. The questionnaire contains total 18 questions of which one question is classificatory
one. Survey Monkey website was used to collect data provides analysis along with results in
percentage. However, data collected in print format were also inputted in the website. Excel
program was also used for further analysis.
3.3 Data Collection Procedures and Responses
Existing literatures show that this type of survey is conducted through postal delivery or mailing
through internet as it is assumed that the reader of this questionnaire is a highly educated person
(Anand 2002; Graham and Harvey 2001). The traditional and modern methods were followed for
collecting data. Initially, the questionnaire was developed in paper format and electronic webpage
format by using the website Survey Monkey. The paper formatted questionnaire was used for
collecting data in person and electronic format questionnaire was sent to finance managers of
sample companies through email with detail instructions. As stated earlier main target
respondents were finance manager or their designated officers. At the beginning, very insignificant
respondent (14 percent of sample) participated without personal intervention. Eventually the
researchers decided to contact the respondents personally to enhance the response rate. Finally the
response rate reached to 78 percent of sample and 29 percent of target population.

Table 1: Industry Representation

No. Industry Sample Size Percentage
1 Cement 4 8%
2 Food and Allied 8 16%
3 Tannery Industries 5 10%
4 Textile 13 26%
5 Pharmaceuticals and Chemicals 8 16%
6 Engineering 3 6%
7 Fuel and Power 6 12%
8 Services and Real Estate 3 6%
Total 50 100
An Overview of the Capital Budgeting Techniques Practiced by the Companies 191

Table - 1 presents the industry-wise composition of companies in the sample. Total 50 companies
were responded to the questionnaire which covers 8 industry categories. Among the sample 26%
companies were from textile industry, 16% from Pharmaceuticals and Chemicals industry and
12% from fuel and power.
4.0 Analysis and Findings

4.1 Identification of the nature of capital budgeting project and evaluation of the project
The survey attempted to visualize the scenario of capital budgeting projects and its nature among
the Bangladeshi companies. Respondents were requested to reply about the size and number of
projects implemented in last year and try to find out any relation or influence with existing
projects over the potential project or not. Table-2 and 3 shows that 77 percent respondent stated
less than 3 projects were adopted in last year and there was significant (91 percent) influence of
existing projects over the new project. In this survey, projects of the companies were categorized
into 3 groups: small, medium and large. Small projects are ranged from Tk. 4 lac to below Tk. 1
crore, medium projects are ranged from Tk. 1 crore to below Tk. 30 crore and large project are
ranged from Tk. 30 crore to Tk. 500 crore.

Table 2. Projects implement during Table 3. Impact of other projects on new

last year proposed investment project
Less than 3 77.27% Yes 90.91%
3–5 9.09% No 9.09%
6–8 4.55% Source: Researcher’s own survey
More than 8 9.09%
Source: Researcher’s own survey

This attempt aimed to comprehend about the procedures adopted in appraising capital investment
decision. There are several quantitative and qualitative analyses required in the capital budgeting
decision. Qualitative analysis other than capital budgeting techniques are those that affect capital
investment decision like Group requirement and decision, availability of resources, etc. while
quantitative analysis means capital budgeting techniques like NPV, IRR etc.

Table 4. Evaluation of an investment Table 5. Use of Qualitative / Quantitative

project approach
With Quantitative Approach 0.00% Qualitative Quantitative Both
With Qualitative Approach 0.00% Small project 55.54% 13.64% 31.82%
(Judgmental)
Both Quantitative and Qualitative 100% Medium 27.27% 9.09% 63.64%
Approach project
Source: Researcher’s own survey Large Project 0.00% 4.55% 95.45%
Source: Researcher’s own survey
192 Journal of Business Studies, Vol. XXXVII, No. 1, April 2016

The respondents were indicated about the analysis they adapted to select the capital budgeting
project and it was found that company listed in stock market used both quantitative and qualitative
analyses when evaluating a capital investment project (See Table-4). The respondents indicate that
companies are very meticulous in selecting a project. Respondents were also requested to reply
whether their analyses were varied with the size of the project or not. It was found that their
analysis also depends on the size of the project. Table-5 shows for small project, 55 percent
respondents have stated that they like to adopt the qualitative approach where as for large project,
95 percent companies used both qualitative and quantitative approach. However, combination of
the techniques has been used in 64 percent of medium sized projects.
4.2 Application of Techniques for Appraising Investment Projects
The objective of this survey was to identify different quantitative and qualitative analyses used in
evaluating investment projects by Companies listed in Dhaka Stock Exchange Limited.

Table 6. Situation where used Qualitative Approach

Availability of Resources\ Budget 36.36% Commitment of the top 36.36%
Management or Sponsors
Alignment with Strategy 45.45% Cultural Fit 4.55%
Statuary Requirements 31.82% Group Requirement and Decision 27.27%
Source: Researcher’s own survey

The situations where qualitative analysis mainly used by the respondents were presents in Table-6.
It reveals that 45 percent respondents have stated that if project is compatible with the strategy,
they would go for it. Availability of resources/budget and commitment of the top management or
sponsors also play a significant role (36 percent for both) in taking investment decision. These
indicate that qualitative analysis plays a significant role in investment decisions. But as shown
earlier (See Table- 4) those companies use both approaches in selecting the investment project.

Table 7. Most widely used Capital Budgeting Techniques

Techniques 1 2 3 4 5 6 Not Used
Payback Period Method (PBP) 9.09% 18.18% 45.45% 4.55% 9.09% 13.64% 0.00%
Discounting Payback Period Method (DPBP) 0.00% 27.27% 9.09% 22.73% 18.18% 13.64% 9.09%
Accounting Rate of Return (ARR) 0.00% 4.55% 18.18% 22.73% 40.91% 0.00% 13.64%
Net Present Value (NPV) 72.73% 13.64% 0.00% 4.55% 4.55% 4.55% 0.00%
Internal Rate of Return (IRR) 13.64% 36.36% 27.27% 22.73% 0.00% 0.00% 0.00%
Profitability Index (PI) 4.55% 0.00% 0.00% 18.18% 13.64% 50.00% 13.64%
Source: Researcher’s own survey
Note: Respondents were asked to order all the above mentioned items. The most important rank was
assigned the value 1 and the less important was assigned the value 5. No ties were accepted.
An Overview of the Capital Budgeting Techniques Practiced by the Companies 193

Several quantitative capital budgeting techniques were listed in the literature namely Payback
Period Method (PBP), Discounting Payback Period Method (DPBP), Accounting Rate of Return
(ARR), Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index (PI). In
the literature, it is often argues that NPV is theoretically superior to other techniques (e.g.
Zimmerman, 1997 and Kaplan and Atkinson, 1998). Finance managers were asked to rank each of
these techniques accordingly and the result shown in Table - 7 is consistent with the theoretical
preference. NPV is also consistent with the objectives of wealth maximization. As many as 73
percent respondents prefer NPV as the most important tools for evaluating an investment project
whereas IRR and PBP method got the second and third preference tool respectively for evaluating
the capital investment projects.
It is usual that when a company invests in a project, especially in medium and large project, prefer
to use more than one technique. Respondents were requested to reply three (3) questions about the
use of more than one technique.
Table 8. Use of more than one Capital Table 9. Reason for using more than
Budgeting Technique one Capital Budgeting Technique
Yes 90.91% No 9.09% Different methods are needed for 59.09%
different situations
If Yes, than how many Some methods give information 50.00%
others don’t.
2 - 3 techniques 47.62% Different management executives 18.18%
want different methods
4 – 5 techniques 47.62% Don’t have full confidence in any 9.09%
one method
More than 5 techniques 4.76% Source: Researcher’s own survey
Source: Researcher’s own survey

According to Table - 8 most of the managers (91 percent) use 2 to 3 techniques and use 4 to 5
techniques (48 percent) in evaluating the project because different methods are needed for
different situations and some methods give information others don’t (See Table - 9). This result is
also consistent with the result of Apap and Masson (2004). They have found 59 percent of their
subjects use more than one technique because different methods are needed for different
situations.

Table 10. Capital Budgeting Techniques accept or emphasis when different techniques
used give conflicting result.
Payback Period Method (PBP) 4.55%
Discounting Payback Period Method (DPBP) 13.64%
Accounting Rate of Return (ARR) 4.55%
Net Present Value (NPV) 68.18%
Internal Rate of Return (IRR) 36.36%
Profitability Index (PI) 9.09%
Qualitative (Judgment) 22.73%
Source: Researcher’s own survey
194 Journal of Business Studies, Vol. XXXVII, No. 1, April 2016

As companies using more than one technique in evaluating a project, there is probability of
conflict of results among different techniques. This survey tried to find out the techniques on
which managers give more emphasis if there is any conflicting result in same situation due to
different techniques. It is observed from the Table - 10 that managers prefer (68 percent) to rely
more on NPV. IRR is in the second position in reliability when there is conflict among those
techniques. It’s interesting that company also put emphasis (23 percent) on qualitative tools as
well when conflict arises among techniques. The result of the study is also consistent with the
Apap and Masson (2004) result as they also have found that 74 percent company place more
importance in NPV.
The findings of the study show the dominance of NPV technique among all the capital budgeting
techniques. This lead to further analysis of preference of NPV according to industries, DSE share
categories and paid-up-capital of Companies listed in Dhaka Stock Exchange Limited. In this
study for analysis industries and share categories are taken as it done by the DSE. While only
classification by paid-up-capital is improvised for the analytical purpose. Companies having less
than Tk. 10 crore as paid-up-capital are classified as small company; Companies having Tk. 10
crore to Tk. 100 crore as paid-up-capital are classified as medium and Companies having Tk. 100
crore and above as paid-up-capital are classified as large company. Table - 11, 12 and 13 presents
the data.

Table 11. Industry wise NPV and Sensitivity Preferences

Industries (No. of company survey) NPV Preference Sensitivity Preference
Cement 100% 100%
Food and Allied 100% 100%
Tannery Industries 100% 00%
Textile 80% 100%
Pharmaceuticals and Chemicals 80% 60%
Engineering 68% 68%
Fuel and Power 33% 68%
Services and Real Estate 0% 00%
Source: Researcher’s own survey

It is revealed from Table - 11 that NPV was given 100 percent preference by Cement, Food and
Allied and Tannery industries, while 80 percent of Textile and Pharmaceuticals and Chemicals
industries prefer NPV. Around 80 percent of large companies in term of paid-up-capital prefer
NPV while it is 100 percent in case of small companies (See Table - 12). Almost 67 percent of A-
category companies prefer NPV while all Z-category Companies prefer NPV (See Table - 13).

Every project has some risk and uncertainty associated with it. In corporate decision making
process, whether to accept a project or not, one of the important task is to evaluate the risk and
uncertainty associated with that project. In theory, we find many techniques to evaluate the risk
An Overview of the Capital Budgeting Techniques Practiced by the Companies 195

associated with a project namely, Sensitivity Analysis, Simulation, Probability Analysis, Scenario
Analysis, Risk Adjusted Discount Rate, etc.

Table 12. NPV Preferences by Paid-up Capital

Category according to Paid-up capital NPV Preference Sensitivity Preference
(No. of Surveyed)
Large 80% 80%
Medium 50% 56%
Small 100% 100%
Source: Researcher’s own survey

In case of risk analysis, it’s clear that sensitivity analysis technique plays a great role among other
techniques. Further analyses are shown in Table - 11, 12 and 13 in this regard. 100 percent of
Cement, Food and Allied and Textile industries prefer sensitivity analysis as technique of risk
analysis while it is 68 percent of Engineering and Fuel and Power industries. About 80 percent of
large companies prefer sensitivity analysis and 100 percent of small Companies. But sensitivity
analysis is less preferred (56 percent) in medium company (Table - 12).

Table 13. NPV Preferences by DSE Share Category

Category according to Share Category (No. NPV Preference Sensitivity Preference
of Surveyed)
A 67% 67%
Z 100% 100%
Source: Researcher’s own survey

Table - 13 contains the summary of results shows 67 percent of A-category companies prefer
sensitivity analysis for risk assessment of an investment project while it is 100 percent for Z-
category companies.
It is important to determine the particular area where managers think capital budgeting techniques
are helpful for evaluating a project. Respondents were requested to identify the area where capital
budgeting techniques are most useful.

Table 14. Preferred risk analysis techniques while evaluating/analyzing investment projects
Techniques 1 2 3 4 5 Not Used
Sensitivity Analysis 72.73% 9.09% 9.09% 0.00% 0.00% 9.09%
Simulation 0.00% 13.64% 13.64% 4.55% 40.91% 27.27%
Probability Analysis 13.64% 13.64% 31.82% 9.09% 9.09% 22.73%
Scenario Analysis 9.09% 45.45% 22.73% 9.09% 4.55% 9.09%
Risk Adjusted Discount Rate 4.55% 13.64% 4.55% 45.45% 9.09% 22.73%
Source: Researcher’s own survey
Note: Respondents were asked to order all the above mentioned items. The most important rank was
assigned the value 1 and the less important was assigned the value 5. No ties were accepted.
196 Journal of Business Studies, Vol. XXXVII, No. 1, April 2016

Respondents were requested to rank the techniques used in estimating risk and uncertainty
according to their practice. Table - 14 contains a summary of the results. The result shows that
sensitivity analysis is at the top preference (73 percent) of their choice. Scenario Analysis
technique has reached the second in term of preference (45 percent) among the managers. The
finding of this study also resembles the existing literature.

Table 15. Area where Capital Budgeting Techniques are most useful for evaluating
Acquisition of new equipment 36.36%
Merger 18.18%
Acquisition of buildings/land 27.27%
Investments in new product/Service 86.36%
Renovation of fixed assets 27.27%
Source: Researcher’s own survey

Investment in new product/Service is the most useful area where 86 percent managers prefer to
use capital budgeting techniques for decision making (See Table - 15). Investment in acquisition
of new equipment is the second area (36 percent) where manager indicate using these techniques.
It’s surprising to see that merger get the least mark (13 percent) where manager prefer to use
capital budgeting tools. The reason behind this is perhaps Bangladeshi companies have less
experience with the practice of merger.
4.3 Identification of Discount rate and other factors
Capital budgeting tools also have some drawbacks and managers facing some problems while
using these tools.
Table 16. Common bottlenecks in applying Capital Budgeting Techniques
Finding appropriate cost of capital 59.09%
Projection of expected Cash Flows 50.00%
Unwillingness of using Capital Budgeting Technique by upper management/BOG 9.09%
Source: Researcher’s own survey

Table 17. Discount rate usually use in Capital Budgeting

Weighted Average Cost of Capital (WACC) 40.09%

Risk Adjusted WACC 22.73%

Weighted Average Cost of Debt/Borrowing Rate 36.36%

FDR Rate 9.09%

Source: Researcher’s own survey

Table - 16 shows that finding out appropriate cost of capital is most challenging task in applying
these tools for decision making as stated by 59 percent of the respondents. Companies have to use
An Overview of the Capital Budgeting Techniques Practiced by the Companies 197

discount rate for evaluating investment projects and Weighted Average Cost of Capital (WACC)
is preferred (40 percent) discount rate in investment evaluation process (See Table - 17). Weighted
Average Cost of Debt/Borrowing Rate is also play an important role in this regard. Arnold and
Hatzopoulos (2000) study has shown 54 percent UK managers prefer Weighted Average Cost of
Capital (WACC) as minimum required rate of return and they compared it with the findings of
Westwick and Shohet (1976) result where they indicated only 10 percent use of WACC. Two
decades ago UK companies mainly used the bank overdraft rate as minimum rate of return for
appraisal an investment project.

Table 18. Other factors or ratio usually Table 19. Use of any special software
consider in making Capital investment for evaluating an Investment Project
decision
Return on Equity (ROE) 31.82% Yes 13.64% No 86.36%
Return on Investment (ROI) 81.82% Source: Researcher’s own survey
Net Profit Margin (NPM) 54.55%
Average Debt Service Coverage Ratio 27.27%
(DSCR)
Source: Researcher’s own survey

Though this study mainly focused on the capital budgeting techniques in evaluating a project,
other factors that are taken into consideration in evaluating a project have also been explored. It is
observed from Table - 18 that return on investment (ROI) and net profit margin (NPM) are very
important factors in evaluating a project. In previous research, Anand (2002) has indicated 85.10
percent of the respondents consider maximizing EBIT and EPS, and 75.90 percent of the
respondents consider the objective to maximize the spread between ROA and WACC. Chadwell-
Hatfield et al., (1997) has indicated that 49 percent of US managers consider operating income of
a project as very important financial criterion in accepting a project. It is believable that managers
do some calculations for the sophisticated procedures. The study shows that the managers don’t
use any special software; rather they use traditional methods for calculation like Excel sheet (See
Table - 19).

5.0 Conclusion
This study is an attempt to identify and evaluate the different capital investment techniques used
by Bangladeshi companies. In order to materialize the objectives of the study, an empirical study
was undertaken to find out the evaluation techniques used by the Bangladeshi companies. The
findings of the study reveal that the companies applied both quantitative and qualitative analyses
in evaluating capital investment projects. It also suggests that the companies listed in DSE tend to
employ multiple evaluation techniques when analyzing medium and large investment project.
However, the results of this survey clearly indicate the dominance of NPV technique among all the
capital budgeting techniques. This research also reported a number of alternative measures
considered to be important in project selection. These measures include top management
commitment, availability of resources or budget, alignment with strategy, statutory requirements
198 Journal of Business Studies, Vol. XXXVII, No. 1, April 2016

as well as return on investment and net profit margin. However, solely emphasis on these factors
may lead to a project selection that is not consistent with the objectives of wealth maximization.
The sensitivity analysis and scenario analysis are the most widely used techniques for project risk
analysis. The respondents use multiple criteria for assessing the project risk indicated companies
listed in DSE are more concerned about the project risk. In the application of capital budgeting
techniques, the discount rate is found an important factor to determine in this regard. In this
survey, companies preferred weighted average cost of capital (WACC) as a discount rate in
investment evaluation process. Further research regarding the discount rate could reveal new
windows for future researches. Also the qualitative factors those intensely influencing capital
investment decision making can be examined.

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