A research report submitted in partial fulfillment of the requirement for the degree of Master of Business Administration, School of Management

Research Studies Project Report (M.B.A.) - Asian Institute of Technology, 1996

Capital budgeting practices followed by an industrial firm form the backbone for developing its profitability and competency. This subject assumes greater significance now than ever before, for private manufacturing sector in view of the increasing complexity and business globalization. The approach of ad-hocism to capital investment decisions may entail disaster. In spite of such a great significance, the holistic study of capital budgeting practices, as far as national inquiry in Nepal and an academic study in depth is concerned, remains an unexplored area. The present study attempts to gain insight into the capital budgeting practices in the private manufacturing sector in Nepal. The study is done using framework developed by the author. The study also compares briefly the practices followed in India and USA/Japan. The primary data collection is done through personal interview-cum-questionnaire with the principle officer responsible for capital budgeting. Secondary data have been collected from NEPSE, and other goverrunent agencies. The response level (11 out of 13) can be considered to be sufficient and representative particularly in the light of currently staiied stock market, data unavailability, and sensitive nature of information being sought for the study. It is noted that, there is centralized capital budgeting . Mostly companies have a practice of ad-hocism in capital investments decisions. They use Payback method for proposal evaluation. In view of various sophisticated capital budgeting techniques used and better capital budgeting system followed by private sector in USA/Japan and India, private manufacturing firms in Nepal need to implement a good capital budgeting system and use DCF techniques to evaluate investment proposals.