Factors affecting capital budgeting of ict sector firms

Thus acquisition of long-term assets is an important decision for any entrepreneurial firm.

If a company changes its investment policy relative to its risk, both the cost of debt and cost of equity change.

Capital Structure Policy As we have been discussing above, a firm has control over its capital structure, targeting an optimal capital structure. For example, as the payout ratio of the company increases the breakpoint between lower-cost internally generated equity and newly issued equity is lowered.

The findings from the responding commercial banks in Kenya indicate that net present value method is the primary criterion for commercial banks long -term projects and level of education, management experience and size of the bank among other factors influence the choice of capital budgeting techniques.

Dividend Policy Given that the firm has control over its payout ratio, the breakpoint of the MCC schedule can be changed. The head of the Investment division function was identified as the most suitable person to comment on the investment appraisal process of capital project acquisition decision making process in the bank.

The fundamental conclusion of this research is that in the banking industry, the level of usage of sophisticated techniques that integrate financial, strategic and risk analysis is lower at approximately The correspondence containing the questionnaire and a cover letter were addressed to top-level corporate managers heading the finance function in theinstitution usually referred to as the Head of Finance, or the General Manager Finance and Administration at most banks.

Uncontrollable Factors Affecting the Cost of Capital These are the factors affecting cost of capital that the company has no control over: Investments in processes such as research, design, development and testing through which new technology and new products are created.

The study recommends that efficiency and effectiveness for all commercial banks requires that limited resources be put to their best use. For example, when interest rates increase the cost of debt increases, which increases the cost of capital.

Thus, no sampling procedures were conducted. Tax Rates Tax rates affect the after-tax cost of debt. These assets may be tangible items such as property, plant or equipment or intangible ones such as new technology, patents or trademarks.

As more debt is issued, the cost of debt increases, and as more equity is issued, the cost of equity increases. Level of Interest Rates The level of interest rates will affect the cost of debt and, potentially, the cost of equity.

The sampling framework included all commercial banks in Kenya.

It may also be viewed as investments in intangible assets. Analysis was done using frequency tables, percentages, mean scores and cross tabulations and where appropriate the results were presented in form of pie charts and bar graphs. Primary data was collected from 22 respondents using structured questionnaires.

As tax rates increase, the cost of debt decreases, decreasing the cost of capital.

The objectives of the study was to identify the capital budgeting techniques employed by commercial banks in Kenya and to establish the factors influencing the choice of capital budgeting techniques used by commercial banks in Kenya.

Investment Policy It is assumed that, when making investment decisions, the company is making investments with similar degrees of risk.size, profitability. There are various factors which affect the capital budgeting decisions like size of the firm, size of the project, type of industry and type of the company etc.

This cross section of public sector and private sector firms. In all total questionnaires were sent to companies through various means, and the firms. FACTORS AFFECTING BIASING OF CAPITAL BUDGETING CASH FLOW FORECASTS: EVIDENCE FROM THE HOTEL INDUSTRY Abstract This study contributes to a neglected aspect of the capital budgeting process, namely, the proposal development stage, which is primarily concerned with project cash flow estimation.

Capital rationing decision – In a situation where the firm has unlimited funds, capital budgeting becomes a very simple process. In that, independent investment proposals yielding a return greater than some predetermined level are accepted.

DETERMINANTS OF CAPITAL BUDGETING TECHNIQUES ADOPTED BY CITY There are various factors which affect the capital budgeting techniques.

Kadondi () noted that smaller firms prefer to use payback period and internal rate of return. public sector physical capital.

Factors Affecting the Cost of Capital

There has been an increase in the population in the. Factors Determining the Selection of Capital Budgeting Techniques Ibrahim E. Ahmed1 on behavioral aspects and environmental factors affecting capital budgeting techniques (Brien [9], and May [10]).

Pike [11] surveyed a large sample of British companies for This trend is driven by many factors such as: The public sector. CFA Level 1 - Factors Affecting the Cost of Capital. Learn about the various factors affecting the cost of capital.

Discusses both the controllable and uncontrollable influences facing a company.

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Factors affecting capital budgeting of ict sector firms
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