An analysis of capital budgeting methods, the cost of capital and decision-makers in listed South African firms

Abstract

This study’s purpose was to link the length of decision-makers’ employment in a firm and their academic qualifications to their choice of capital budgeting methods and of cost of capital techniques. The results show that the net present value (NPV) is more popular than the internal rate of return (IRR) as a capital budgeting technique. Also, irrespective of how long respondents have been employed by a company, they all use a discount rate. However, there is a significant tendency among respondents with postgraduate qualifications to prefer the NPV as a capital budgeting technique. Thus, in South Africa, academic qualifications do play a role in decision-makers’ capital budgeting practices.