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- Title
A Synthesis of Capital Budgeting Techniques Around the World: 1990-2018.
- Authors
BRINCKS, STEPHEN; HADDAD, KAMAL M.; LOTFALIEI, BABAK; TROMBLEY, TIMOTHY E.
- Abstract
We present a synthesis of 46 capital budgeting surveys from around the world. We find that some recommended capital budgeting techniques are widely used in many countries, such as Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period (PB), Scenario Analysis and Sensitivity Analysis. However, cost of capital best practice, i.e., calculating weighted average cost of capital (WACC), as an input in capital budgeting techniques is not used by the majority of firms. An average of 34% of firms across surveys do not even compute a cost of equity required in calculating WACC. Only a small minority of firms use more advanced techniques, such as Economic Value Added (EVA) and simulation analysis. These results show that financial educators have a long way to go in matching up financial practices with the theory via financial education.
- Subjects
CAPITAL budget; INTERNAL rate of return; NET present value; CAPITAL costs; PAYBACK periods
- Publication
Quarterly Journal of Finance & Accounting, 2020, Vol 58, Issue 4, p105
- ISSN
1939-8123
- Publication type
Article