Improved capital budgeting decision making: evidence from Canada

Purpose – The purpose of this article is to evaluate current techniques in capital budget decision making in Canada, including real options, and to integrate the results with similar previous studies.Design/methodology/approach – A mail survey was conducted, which included 88 large firms in Canada.Findings – Trends towards sophisticated techniques have continued; however, even in large firms, 17 percent did not use discounted cash flow (DCF). Of those which did, the majority favoured net present value (NPV) and internal rate of return (IRR). Overall between one in ten to one in three were not correctly applying certain aspects of DCF. Only 8 percent used real options.Research limitations/implications – One limitation is that the survey does not indicate why managers continue using less advanced capital budgeting decision techniques. A second is that choice of population may bias results to large firms in Canada.Practical implications – The main area for management focus is real options. Other areas for im...

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