CAPITAL INVESTMENT APPRAISAL: A COMPARATIVE STUDY BETWEEN PUBLIC AND PRIVATE ENTERPRISES
(A STUDY OF NIGERIAN NATIONAL PETROLEUM CORPORATION  (NNPC)
ABSTRACT
The study focused on Capital Investments Appraisal; A comparative Study between Public and Private Enterprises: A study of Nigerian National Petroleum Corporation (NNPC), Enugu. Capital investment  involve basically the estimation of the cash flow, estimation of the expected cash return and application of evaluation techniques in making investment decision. This study looked into the extent to which the NNPC do carry out proper evaluation of capital project before making their investment decision as well as the extent in which other factors are consider in the decision process. The study assertion the extent to which capital investment evaluation techniques are used by the Nigerian National Petroleum Corporation (NNPC), Enugu in evaluation of the capital investment project. And consider whether well evaluated project will yield adequate return for investors as well as the other factors, whether influence the selection of the project to be invested in. In arriving at my conclusion, interview were conducted and statistical test such as the chi-square were used in analyzing data collection at the course of the study. Results of the study shows that the evaluation of the capital project by the management of the NNPC is not normally carried out effectively before making their investment decision and that a well evaluated project will normally yield an adequate return on investment. Based on the findings, some recommendation has been put forward for consideration in chapter five.
TABLE OF CONTENTS
CHAPTER ONE    
INTRODUCTION                               
1.1    Background of the study                       
1.2    Statement of the problem                          
1.3    Objective of the study                               
1.4    Research Questions                           
1.5    Scope of the study                        
1.6    Limitation of the study                       
1.7    Definition of terms                           
CHAPTER TWO
LITERATURE REVIEW
2.1    Conceptual Framework                        
2.2    Theoretical framework                   
2.3    Empirical Framework                          
2.4    Summary of Literature                    
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY                
3.1    Introduction                                    
3.2    Area of the Study                             
3.3    Sources of Data                              
3.4    Population of the study                          
3.5    Sample Size Determination                           
3.6    Instruments for data collection                   
3.7         Validation of the instrument                  
3.8     Reliability of the instrument                         
3.9    Method of Data Collection                        
3.10    Method of Data Analysis                       
CHAPTER FOUR
PRESENTATION AND ANALYSIS                
4.1    Introduction                             
4.2    Data Presentation and Analysis                   

CHAPTER FIVE
SUMAMRY OF FINDINGS, CONCLUSION AND RECOMMENDAITONS
5.1    Summary of Findings                           
5.2    Conclusion                                 
5.3    Recommendations                         
References                               
Appendices    
CHAPTER ONE
INTRODUCTION
1.1    Background of the Study
The success and growth of any business enterprise depends upon the efficient utilization of available resources particularly budgeting of capital expenditure. The introduction of technological improvements and expansion of plant operations represents a major factor in economic growth and increased productivity. Mooiand Mustapha (2014) have noted that systematic utilization of capital budgets tends to enhance proper financial expenditure decisions.
Capital investment is closely related to investment decision- making process. Investment decision is a financial process which involves the firm to invest efficiently its current funds in long term profitable enterprises. Viable decisions such as purchasing of new machinery, permanent assets (e.g. factory buildings warehouses, delivery services, staff training schemes or new production lines etc.) require sound investment decisions by the firm’s management team.
Weston and Brigham (2016) have observed that capital investment involves planning expenditures whose returns extend beyond a year such as acquiring land, buildings, equipment as well as permanent plant and structural expansions. The process of investment decision involves the firm making cash outlay plans with the aim of receiving future cash flows. One of the most challenging decisions made by any management team is of capital investment. Presently companies tend to make decisions worth millions of shillings in capital improvements. Such hasty decisions to a certain extent can cause company bankruptcy and insolvency especially if financial decisions were made without thorough understanding of capital investment procedures. Investment decisions are worthwhile particularly if they create value to its owners. Many managers tend to argue that if the project returns outweigh investments, then the project is viable. This is a simplistic argument because it ignores important elements of money e.g. its present value and time. Moreover, the management should be able to forecast created cash value in advance. In some cases, companies use some form of capital investment techniques to determine if a project will add the needed value to justify the capital outlay risks.
When considering a new enterprise investment, business analysts tend to assess the viability of initial investment to generate a profit. Capital investment determines the worthiness of a given project. In the determination of the worthiness of a project two basic techniques are used namely payback period (PB) and accounting return rate (ARR). On the other hand, the most popular methods are net present value (NPV) and internal return rate (IRR). Pike & Neale (1999) have defined payback period as the time required for a given enterprise to acquire self-substance. This period does not take into account the cash flow after the investment. Equally, it doesn’t pay attention to the present values as well as time value of money accruals. Although evaluating the payback period does not offer a business a detailed analysis of the project, it does provide some relevant perspective on capital investment. Additionally, some investors will not fund a project if the payback period exceeds a certain time limit.
Munyao (2010) describes accounting rate of return (ARR) as the annual accounting profits from a capital project divided by a defined annual average capital investment outlay over a project’s life span. It means, simply the average after tax profit divided by the initial cash outlay of the project, and has similarity with the return on assets. The accounting rate of return as a non-discounting criterion is exposed to the same type of criticism like the PB since it violates the two properties of capital flows, but considers all the accounting profits instead of cash flows, over a given life of a capital investment. It however does not consider time value of money. Managers would be indifferent in their choice between one project and other with after tax profits, which may occur in the opposite chronological order because both projects would have similar accounting rate of return.
The net present value refers to the present cost value of a project less its benefits. Net present value analysis uses the current value of the project’s cash flow. In the process, it compares current project cash inflow to its cash outflows. For a viably vibrant project, its value is greater than zero. Contrarily, negative values predispose the project as untenable and unprofitable. In cases where the two projects portray mutual exclusiveness; the one with the highest net present value wins the bid. NPV generally has the advantage of time consideration of the value of money. In the evaluation of capital investment, internal return rate (IRR) is often used. It calculates the expected return rate (ERR) ratio of an investor to his/her investment.
As stated above, the net present value is calculated by using a predetermined discount rate. By continuously manipulating the discount rate it is possible to come up with the rate where the NPV is zero. When a business uses funds from investors for a project, the business must pay back these investors for the use of their funds. This represents the company's cost of capital, and should also represent the minimum required rate of return for the project. When there exist a positive net present value, the project's return will exceed the discount rate; if the project has a negative net present value, the discount rate will exceed the return of the project
1.2    Statement of the Problem
Companies listed in the NSE plays a significant role in country’s economic development and hence financial managers in the listed companies are required to effectively manage its budget in order to improve on organizational financial performance. The influence of capital investment techniques on organizational financial performance remains a major problem that has not been solved by many financial managers in many firms listed in the Nairobi Securities Exchange. Many financial managers have not managed to clearly establish on the extent to which capital investment techniques influences the level of organization performance. As a result, many financial managers are unable to employ effective capital investment techniques hence leading to declined level of organization performance in terms of profitability. This study was hence justified since it contributed towards equipping financial managers of the listed companies with more knowledge and skills on how capital investment techniques influences organization financial performance.
In principle, a firm’s decision to invest in a new project should be made according to whether the project increases the wealth of the firm’s shareholders. As Graham & Harvey (2014) document, this rule has steadily gained in popularity since Dean (1951) formally introduced it, but its widespread use has not eliminated the human element in capita budgeting because the estimation of a project’s future cash flows and the rate at which they should be discounted is still relatively subjective process, the behavioral traits of managers still affect this process.
NNPC did not use capital investment as an appraisal tool because the company business operation did not encourage the use of capital investment is an investment appraisal instrument. Unreliable methods of keeping records were discovered as a common practice in NNPC. NNPC Management did not term it necessary to use any appraisal tool for management decision. NNPC accounting staff employed for the purpose of transitional accounting function was utilized for recording keeping.
1.3    Objective of the Study
The general objectives of the study is “Capital Investment Appraisal: A comparative study between public and private enterprises: A study of Nigerian National Petroleum Corporation (NNPC). The specific objectives are as follows:
1.    To determine the extent of capital investment in public and private enterprises especially in NNPC.
2.    To find out the reasons for inadequate or non–existence of the capital investment in Nigerian National Petroleum Corporation (NNPC).
3.    To examine the methods of capital investment in public and private enterprises.
4.    To ascertain the major challenges of capital investment and suggests solutions towards a better structure and effective conduct to improve capital investment methods in both public and private enterprises especially NNPC.
1.4    Research Questions
The following research questions are raised to guide the study:
1.    What is the extent of capital investment in public and private enterprises especially in NNPC?
2.    Are there NNPC reasons for inadequate or non–existence of the capital investment in Nigerian National Petroleum Corporation (NNPC)?
3.    Is there methods of capital investment in public and private enterprises?
4.    What are the major challenges of capital investment and suggested solutions towards a better structure and effective conduct to improve capital investment methods in both public and private enterprises especially NNPC.
1.5    Significance of the Study
The significance of this study is to:
1.    Highlight the effect of a poor working environment on the motivation of workers with a view of identifying specific area of deficiency’s to be modified in order to meet the requirement of the modern day office.
2.    To provide workers with facilities to enable them to work towards the achievement of organizational goal.
3.    The study will also help to improve workers morale and their condition of services.
4.    Applicant graduate secretaries will also benefit from this study, as it would provide sources of employment information.  The study will equally make up the serving secretaries to the appropriate potentials on the job, brace up to the challenges of the time in order to recreate the true image of secretarial practice which has soc much suffered misconceptions
•    Management and staffs of the IMT will come to realized the need of the auditing.
•    The study shall be useful to the colleagues of the researcher and the entire students in the field Business Administration. in future.
•    This research will be very beneficial for the researcher, in the sense that it will award the researcher HND certificate in the department of Public Administration.
1.6    Scope of the Study
The scope of the project boarder on capital investment appraisal in NNPC as a case study. It tries as much as possible to cover various aspect of capital investment which includes formation of long –term goals, searching for investment proposal estimation and forecasting of current and future cash flow economic evaluation of alternative project, the preparation of appropriation and control budget, and integration of those budgets in the firms information system review of the performance of post projects.
The study will cover selected public company (NNPC as a case study in the project. The study will definitely be more accompanies if it covered as many institution as possible, due to limitation in time factor and money the research will only cover a selected company chosen.
1.7    Limitations of the Study
Limitations abound in this type of study. So far the limitations experienced are as follows;
•    Access to Documents ; Experience has shown that apart from carrying out a research academic studies in firms, it is always difficult to gain access to documents. This is because firms have certain secret committed to writing which they will not like any person to see. This was a considered impediment on this study. Another impediment was time constraints.      
•    Time constraint: Unlimited studies on different areas of interest would have been conducted throughout the world if for time constraint amongst others.  In this study, time constraint was the most inhibiting factor which otherwise would have enable an extensive pursuit of knowledge in this area of interest capital investment .  Apart from time constraint, there was the problem of getting sufficient information.
•    Insufficient Information : Interview was conducted by the researcher in addition to trying to see some documents. Documents wanted were not obtained because of interviewer’s fear of letting out company secrets. Some oral information was also difficult to get.
In spite of the limitations mentioned above, the study of capital investment has a lot of significance.    
  Definition Of Terms
i.    Capital investment; this is a long-term plan made for expenditures necessary to buy fixed assets for production of goods.
ii.    Finance; This is a term used to denote the acquisition and expending of funds to meet an economic units objectives.
iii.    Cash-inflow; It is used to means flow of cash into a firm such as revenue from sales.
iv.    iv) Capital assets; They are assets of long term nature used in the production of goods.
v.    Outlay of funds; Expending of money, Terms were defined in order to make readers understand the subject under discussion.
vi.    Knowledge is cumulative and text books already write on the subject serve as a precedent for the work. It was in purist of more knowledge in capital investment  that the researcher reviewed literatures written by several authors on the subject.