A study on capital budgeting practices of some selected companies in Bangladesh

Abstract

Purpose – The purpose of this paper is to investigate the current capital budgeting practices in Bangladeshi listed companies and provide a normative framework (guidelines) for practitioners. Design/methodology/approach – Data were collected with a structured questionnaire survey taking from the chief financial officers (CFOs) of companies listed in the Dhaka Stock Exchange in Bangladesh. Garnered data were then analyzed using descriptive and inferential statistical techniques. Findings – The results found that net present value was the most prevalent capital budgeting method, followed closely by internal rate of return and payback period. Similarly, the weighted average cost of capital was found to be the widely used method for calculating cost of capital. Further, results also revealed that CFOs adjust their risk factor using discount rate. Originality/value – The findings of this study might help the firms, policymakers and practitioners to take a wise decision while evaluating investment projects. Additionally, this study’s findings enrich the existing body of knowledge in the field of capital budgeting practices by providing more reliable and comprehensive analysis taking samples from a developing economy.

Keywords

• NPV
• Risk
• Financial management
• Capital budgeting
• IRR
• WACC