Capital Budgeting: Theory Versus Process

Paper Summary:

This paper explores the capital budgeting process in a real-work scenario. The paper aims to determine how companies apply capital budgeting theory in actual practice and what results they can expect to achieve. The paper specifically examines the capital budgeting theory and how it is applied at the Ghana Oil Palm Development Corporation.

Table of Contents:
Background
Recent Capital Projects
Theoretical Background of Study
Choice of Methodology
Results
Analysis and Interpretation
Conclusions and Recommendations

From the Paper:

"The results of this study demonstrated the importance of considering external factors in the capital budgeting process. The role of local and national governments must also be considered. This study will help others realize how important it is to include external factors in their capital budgeting analysis. This study achieved its goals be providing in-depth insight into the thought processes that govern the capital budgeting process. As we found out, often those that make the decisions regarding the method for capital budgeting must act under the direction of others above them. This can make the process difficult, especially if the superior does not understand the importance of external variables that can affect the outcome of the project."

Sample of Sources Used:

• Country Studies (n.d.) Ghana: The Economy. Retrieved September 20, 2007 from http://www.country-studies.com/ghana/the-economy.html.
• Ghana Oil Palm Development Corporation. (GOPDC) (2007a) Company Profile. Retrieved September 21, 2007 from http://www.gopdc-ltd.com/index.cfm/page:company- profile
• Ghana Oil Palm Development Corporation. (GOPDC) (2007b) Investment Programme. Retrieved September 21, 2007 from http://www.gopdc-ltd.com/index.cfm/page:investment-programme
• Morgan, R., Redman, A., Smith, M., and Cooper, W. 2001. 'Capital budgeting models: theory vs. practice.' Business Forum. Retrieved September 21, 2007 from http://www.allbusiness.com/accounting/budget/840197-1.html
• Klammer, T. and Walker, M. 1984. 'The Continuing Increase in the Use of Sophisticated Capital Budgeting Techniques,' California Management Review, fall 1984, 137-148 in Meier, I. and Tarhan, V. 2006.'Corporate Investment Decision Practices And the Hurdle Rate Premium Puzzle.' Retrieved September 21, 2007 from www.kellogg.northwestern.edu/finance/faculty/seminars/tarhan101906_1.doc.

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