A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration.

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

The study attempts to identify the capital budgeting practices in Sri Lankan companies with special reference to the framework developed by the author. The information used in this study was gathered tluough a questionnaire survey and interviews with finance managers and other executive officers of companies, mainly with the scope of listed companies in the Colombo stock exchange in Sri Lanka. The study also relies on company publications, Board Of Investment publications, unpublished and published academic literature and business magazines. The study identifies the typical features of the capital budgeting process, giving more emphasis on idea generation for new investments, market analysis, tax and depreciation treatments, the effect of inflation, funding methods, capital budgeting techniques, calculation of cost of capital, economic evaluation, capital expenditure approval, implementation of capital projects and project review after the commercialization. After a brief comparison of Sri Lankan practice with Indian capital budgeting practices, the study selects the Ceylon Glass Company for in-depth case study to explain the capital budgeting practice in greater detail. In the case study, it presents the total capital budgeting process considering the example of expansion and modernization project which was implemented recently. Finally study conclude giving recommendations to improve the effectiveness of Sri Lankan capital budgeting process. This study provide a guidance to corporate finance managers to improve the outcome of the capital investment decisions in their companies.