A survey of capital budgeting techniques used by listed mining companies in South Africa
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Authors
Maroyi, Vongai
van der Poll, Huibrecht M
Issue Date
2012-08-15
Type
Article
Language
en
Keywords
Capital budgeting techniques , Net present value , Internal rate of return , Payback period , Mining companies , South Africa
Alternative Title
Abstract
Capital budgeting is crucial in the maximisation of shareholder value as it depends on the capital
budgeting decisions made by the managers. The capital budgeting techniques used by South African
mines listed on the Johannesburg Securities Exchange (JSE) and the reasons behind their use were
investigated. Questionnaires were conducted during the period of March to May 2011 to gather data.
The results also indicated that the net present value (NPV) (69%), the internal rate of return (IRR) (46%)
and the payback period (PB) (23%) are the most common techniques used to evaluate major projects.
The main reason for the use of the NPV was its superiority as it accurately takes into account the time
value of money. The IRR method is used owing to its ability to rank projects and to indicate the actual
return of each project, thereby informing managers whether an investment will increase the company’s
value. The results indicated that the continual use of PB was based on the simplicity of the technique.
Financial officers (FOs) should also make use of other techniques for example, discounted payback
period (DPB), profitability index (PI) and the real options which are of valuable in determining the
feasibility of projects.
Description
Citation
Publisher
African Journal of Business Management
License
Journal
Volume
Issue
PubMed ID
DOI
ISSN
1993-8233