CHAPTER ONE
INTRODUCTION
1.1 Background Of The Study
Modern time cal1s for efficient al1ocation of resources by the management of any organization. The survival and growth of any organization makes profitability an indispensable element in the operation of a business organization. This function thus, involves the firm’s decision to commit its limited funds in long-term assets and other profitable activities with a view to earning a stream of income over a period of time in the near future.
Investment appraisal is an integral part of capital budgeting and is applicable to areas even where the returns may not be easily quantifiable such as personnel, marketing and training. Investment appraisal decision in any organization is always handled with an utmost care. This is due to the fact that the fund available to the business organization is limited.
Thus, in view of the strategic importance and the nature of investment decision, there is need for a critical analysis and appraisal on investment opportunities before the commitment of the scarce resources to it with the aim of maximizing return.
Hence, by investment appraisal and its application techniques refers to those traditional and scientific tools that management of a business organization makes use of as a guide in investing into viable and lucrative investment opportunities.
1.2 Statement Of The Problem
The choice of best investment opportunities no doubt accrues a lot of benefit to an organization. The stream of income over a period of time is essential for profitability purpose, which has the potential to intensify the survival and accelerate the growth of the business organization with a resultant increase in the wealth of the owner.
From another perspective, a wrong choice of investment opportunity due to inability to appraise it critically in terms of outcome, cash profile and so on will not only regard the growth of the business organization but might make it die prematurely.
This research work is therefore meant to provide solution to know the scope and application of investment appraisal and its application technique, whether it investing in existing or new business.
1.3 Objectives Of The Study
i. To find out the extent to which the manufacturing industry apply investment appraisal and its application techniques in their investment decision
ii. Examining the effect of application of investment appraisal on the success of manufacturing industries
iii. Examining the comparative advantage that the decision makers will derive and disadvantages that they may likely encounter in the course of appraising investment and its application techniques.
iv. To ascertain the duration in making use of investment appraisal techniques.
v. Examining the initiators of capital investment proposal in Emenite Limited.
1.4 Research Questions
The research questions to be considered in this study are as follows:
i. What are the relevance of investment appraisal and its application techniques?
ii. What are the achievements of pre-determined goal using investment appraisal and the application technique?
iii. What are the effects of political and economic reforms in Emenite limited?
iv. What are the durations in making use of investment appraisal techniques?
v. What are the initiators of capital investment proposal in Emenite limited?
1.5 Research Hypothesis
The researcher developed the following research questions;
H01: Manufacturing industries does not make use of investment appraisal in investment decision making?
HA1: Manufacturing industries makes use of investment appraisal in investment decision making?
H02: The application of investment appraisal techniques does not have any impact on the success of manufacturing industries.
HA2: The application of investment appraisal techniques has significant impact on the success of manufacturing industries.
H03: Political and economic reforms does not have any effect on investment decisions of manufacturing industries.
HA3: Political and economic reforms has significance effect on investment decisions of manufacturing industries.
1.6 Scope Of The Study
This research work is done to access the effectiveness of investment appraisal and its application techniques. This work covens only some issues, analysis and capturing impact of investment appraisal to management of manufacturing industries.
1.7 Significance Of The Study
The significance of this study is to help those who will find this project work more meaningful as related to investment appraisal and its application techniques.
The study will also emphasize in its ability to unveil the benefit of their usage to shareholders, managers, government and need to adopt a more rational approach to investment decision situation rather adhering to the traditional method which is more or less “rule of thumb” before committing the scarce resources to a decision which once taken and committed is irreversible.
1.8 Definition Of Terms
Investment: Committing funds to project with a view to earning an acceptable stream of income in the future.
Examples include investments in bonds and securities and purchase of assets for company operation etc.
Appraisal: Critical evaluation of the cost of an investment proposal for the benefit in the future.
Evaluation; Determination or assessment of the value of a project.
Investment Appraisal; An evaluation of the attractiveness of an investment proposal using methods such as Internal Rate of Return, Net Present Value, etc.
Application Techniques: Tools for appraising investment opportunities.
Investment Decision; A determination made by directors and/or management as to when, where and how much capital will be spent on investment opportunities.
Interest: Charge for borrowing money or the return from lending it or cost of using the lent money.