THE REVIEW AND USE OF CAPITAL BUDGETING INVESTMENT TECHNIQUES IN EVALUATING INVESTMENT PROJECTS: EVIDENCE FROM MANUFACTURING COMPANIES LISTED ON PAKISTAN STOCK EXCHANGE (PSE)

Abstract

An assortment of speculation examination/capital planning systems is talked about as a basic
segment of standard and prominently utilized course readings on Financial Management and
Corporate Finance. Every procedure has a few points of interest and deficiencies which a client must
know about other than knowing which method would be the right instrument to use for taking a choice
in a specific circumstance. That's why the aim of the present study is to determine the review and use of
capital budgeting investment decision in Pakistan in 2017. As there is 427 manufacturing companies
listed on Pakistan stock exchange categorized into 26 sectors from which five sectors [Chemical,
automobiles assemblers, food & personal care product, sugar & allied industry and textile
(weaving)]have selected as a sample by applying purposive sampling technique, which contains 90
manufacturing companies. The nature of study based on quantitative and qualitative both. Primary
data was collected with the help of adopted questionnaire containing sixteen items.There are six types
of capital budgeting techniques like internal rate of return(IRR), payback period(PBP), profitability
index(PI), accounting rate of return(ARR), net present value(NPV) and modified internal rate of
return(MIRR)which are considered in investment decision but four techniques (net present value
(NPV), internal rate of return (IRR), profitability index (PI), and payback period (PBP) ) are more
specifically be used in every organization. That's why the current study considered these four
techniques to evaluate investment projects. The reliability calculated by the help of Cronbach's Alpha
and One-Sample T-Test used to calculate the results of this study statically to prove the significance
level (P-value) of Net Present Value, Internal Rate of Return, Profitability Index and Payback Period.
The results found that net present value (NPV) is most commonly used by the manufacturing
companies in choosing amongst investment projects, while on the other side profitability index (PI)
has least used in investment decisions by the firms in Pakistan according to the statistical results.It is,
further, revealed that most of the firms used only one evaluation technique among these favored
techniques. Moreover, it is found that project definition is the most important and critical in the capital
budgeting process for service organizations.