Capital budgeting practices adopted by public and private companies in Ghana: A case study of selected companies

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JULY, 2015
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This research seeks to ascertain whether private and public companies within the Kumasi Metropolis adopt proper Capital budgeting practices and whether there are differences in their cost of capital computation. The researcher surveyed twenty five public companies and fifty five private companies. The questionnaire, which is the basic method of data collection, was employed to gather primary data on capital budgeting practices in Kumasi Metropolis. The study employs the frequency analysis and the Chi-Square test to come out very intriguing revelations. The critical analysis of data revealed that the commonest capital budgeting technique used by most companies are net present value, payback, accounting rate of return, internal rate of return and other unknown practices, but NPV stands tall among the lot. Moreover, the analysis also reveals that the weighted average cost of capital is the most popular model used among companies within the Kumasi metropolis. This is followed by the use of the ruling or average interest rate charged by commercial banks. Majority of respondents employs the capital asset pricing model by way of incorporating risk into their analysis to compute the minimum expected rate of return on investment projects. Key Words: Capital Budgeting Techniques, Cost of Capital, Net Present Value, Internal Rate of Return, Average Cost of Capital, Chi-Square.
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A thesis submitted to the School of Graduate Studies, Kwame Nkrumah university of Science and Technology, Kumasi in partial fulfillment of the requirements for the award of Master of Business Administration – Finance Option,
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