S.L. Middelberg, S. van Rooyen and A.J. Pienaar
Cost management is essential in every organisation, especially in an increasingly competitive environment (Jain & Yadav 2006:352). The management of distribution costs has become…
Abstract
Cost management is essential in every organisation, especially in an increasingly competitive environment (Jain & Yadav 2006:352). The management of distribution costs has become increasingly important because of the rising fuel costs in recent years (Gaffney 2008:40). Delivery routes should be optimised in order to reduce distribution costs. This article presents a comprehensive segment margin approach model for determining the financial viability of delivery routes. A specific bakery (henceforth referred to as Bakery A) was selected as a case study, and the use of general management accounting principles in determining the financial viability of delivery routes was specifically investigated.
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C. Correia and P. Cramer
This study employs a sample survey to determine and analyse the corporate finance practices of South African listed companies in relation to cost of capital, capital structure and…
Abstract
This study employs a sample survey to determine and analyse the corporate finance practices of South African listed companies in relation to cost of capital, capital structure and capital budgeting decisions.The results of the survey are mostly in line with financial theory and are generally consistent with a number of other studies. This study finds that companies always or almost always employ DCF methods such as NPV and IRR to evaluate projects. Companies almost always use CAPM to determine the cost of equity and most companies employ either a strict or flexible target debt‐equity ratio. Furthermore, most practices of the South African corporate sector are in line with practices employed by US companies. This reflects the relatively highly developed state of the South African economy which belies its status as an emerging market. However, the survey has also brought to the fore a number of puzzling results which may indicate some gaps in the application of finance theory. There is limited use of relatively new developments such as real options, APV, EVA and Monte Carlo simulation. Furthermore, the low target debt‐equity ratios reflected the exceptionally low use of debt by South African companies.
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Amaechi Kingsley Ekene, Kugara Stewart Lee, Mdhluli Tsetselelani Decide and Tsoaledi Daniel Thobejane
This chapter explores the role of indigenous knowledge system (IKS) in the development of informal entrepreneurial models in Africa. This was undertaken through a discussion of…
Abstract
This chapter explores the role of indigenous knowledge system (IKS) in the development of informal entrepreneurial models in Africa. This was undertaken through a discussion of the production processes and the marketing platforms used in producing and distributing mpesu (a traditional medicine used for sex enhancement and reproductive healthcare) by Traditional Healthcare Practitioners (THPs) in the Vhembe District of South Africa, and Beitbridge areas of Zimbabwe. The argument is that drawing on Vhavenda IKS-based strategies, entrepreneurs involved in the healthcare product have managed to develop context-appropriate and innovative strategies for marketing mpesu. However, while this model may appear unorthodox, it has helped sustain the appetite and demand for the product. It has also, despite its imperfections, provided economic safety-net for local entrepreneurs.
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Suzette Viviers and Howard Cohen
Capital budgeting is a key issue in corporate finance and over time major theoretical developments have been incorporated into the appraisal processes of capital intensive…
Abstract
Purpose
Capital budgeting is a key issue in corporate finance and over time major theoretical developments have been incorporated into the appraisal processes of capital intensive companies. The purpose of this paper is to investigate the capital budgeting practices of a sample of motor manufacturing companies in South Africa and compare the empirical findings to the existing literature in order to establish whether the theoretical aspects are still widely practiced.
Design/methodology/approach
Semi‐structured personal interviews were conducted with respondents at eight motor manufacturers in the Eastern Cape and Gauteng provinces of South Africa.
Findings
The net present value (NPV) and internal rate of return criteria are the two most popular appraisals methods used in practice. Most respondents used multiple criteria before making substantial capital investments. These findings conform to contemporary capital budgeting theory.
Practical implications
Financial managers should first calculate the discounted payback period of a project before embarking on a more detailed analysis. Once all the data are available, NPV should be used as the primary means of evaluating investments, as this criterion gives the best indication of how much shareholder value the project will add. It is further recommended that more attention be given to “green” considerations in the capital budgeting process.
Originality/value
The paper evaluates the applicability of existing literature on capital budgeting to the practice thereof in a capital intensive industry in South Africa. No similar study has been done previously.
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Himanshu Singla, Amandeep Singh and Pooja Mehta
Based on the job demands–resources (JD-R) model, this study aims to answer a key research question, i.e. can the job characteristics (i.e. job demands and resources) affect…
Abstract
Purpose
Based on the job demands–resources (JD-R) model, this study aims to answer a key research question, i.e. can the job characteristics (i.e. job demands and resources) affect intention to retire early? Additionally, a mediating effect of emotional exhaustion and organizational commitment on the relationships of job demands and job resources, respectively, with early retirement intentions has been explored in the study.
Design/methodology/approach
The data has been collected from survey of 450 employees from the banking sector in the state of Punjab (India). A structured questionnaire adapted from past literature has been used as survey instrument for the study. Partial least squares structural equation modelling has been applied in the study using latest version of SmartPLS (version 3.2.8) software.
Findings
Both job resources and job demands have a direct significant impact on early retirement intentions. Moreover, a significant partial mediation effect of emotional exhaustion and affective organizational commitment has also been found out on the relationship of job demands and job resources with early retirement intentions, respectively.
Originality/value
The study makes incremental contribution by highlighting the role of both deterrent and motivational factors that either instigate or discourage early retirement intentions among employees. It offers valuable insights for the organizations to use efforts for curtailing the excessive job demands that lead to emotional exhaustion and further result in early retirement intentions. Besides this, adequate job resources should be provided to the employees that lead to the development of affective organizational commitment, which further helps in sustaining the workforce until their actual retirement age.
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This study brings together cognitive and organizational aspects of the strategic investment decision-making process. It focuses on the early stages of strategic investment…
Abstract
Purpose
This study brings together cognitive and organizational aspects of the strategic investment decision-making process. It focuses on the early stages of strategic investment decision-making. This paper aims to augment the limitations of previous survey-based research through an archival case study that describes pre-decision screening in detail.
Design/methodology/approach
This paper draws on archival data covering an investment decision undertaken by a large brewing company. The data cover a period of about six years, focusing on the decision to invest in West Africa. A rational/intuitive orientation model of the process is used as a framework to help analyze the archival evidence.
Findings
Strategic investment decisions are non-programmed, complex and uncertain. For some companies (e.g. those with a strategic focus on new expansions), certain non-programmed decisions may become semi-programmed in the course of time by applying knowledge learned from having successfully handled non-programmed decision situations in the past. However, other companies without such a focus may not be able to programme part of their strategic decisions. Pre-decision control mechanisms constitute a form of strategic control by detecting potential problem areas in the investment option before formal approval.
Research limitations/implications
Given the narrow scope of this paper – a single case study – the findings are used for theorization rather than offering generalizable results. There is a need for unified models to enrich our understanding of the influence that contextual factors have on strategic investment decision-making. Effective strategic pre-decision control mechanisms that maintain a good balance between rational and intuitive approaches are matters that remain open for debate in future research.
Practical implications
Research on organizational and cognitive aspects of the strategic investment decision-making process is inherently practical. To achieve successful strategic investment decisions, it is essential to devote more attention to the choice and design of strategic control mechanisms.
Originality/value
The framework of this study can help practitioners to gauge the strengths and weaknesses of their decision-making practices. It focuses on three aspects that are relatively absent in the literature: the strategic problem, the strategic choice and the chronological relations between the five stages of the strategic investment decision-making process. The use of historical data is suited to providing illustrations of intuitive/heuristic-based practices that would otherwise be hard to capture.
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Elikplimi Komla Agbloyor, Frank Kwakutse Ametefe, Emmanuel Sarpong-Kumankoma and Vera Fiador
After completing this case, students should be able to: identify and compute relevant cash flows in relation to a real estate project and compute the net present value (NPV)…
Abstract
Learning outcomes
After completing this case, students should be able to: identify and compute relevant cash flows in relation to a real estate project and compute the net present value (NPV). Determine the target return or cost of capital (by looking at historical economic indicators). Design or formulate a sensitivity analysis to determine the drivers of the project value. Evaluate real estate and other investments taking qualitative and quantitative factors into consideration. Demonstrate the computation of a break-even rate to determine the minimum or maximum revenue or cost required for a project to be viable.
Case overview/synopsis
This case study is about the Golden Beak Securities Pension Fund that wanted to invest in a Hostel Project in one of the universities in Ghana. Most universities in Ghana faced an acute shortage of on-campus accommodation. Also, the Government of Ghana, in 2017, implemented a programme to make Senior High School in Ghana free. This was expected to increase the number of students who will enter the existing universities. The project was therefore seen as strategic, as it would help ease the pressure of on-campus accommodation while providing diversification for the pension fund. As part of the investment committee’s (IC) quest to improve the skill set available to it, especially in relation to real estate investments, Esi Abebrese was appointed as one of the members of the IC of GSB. Her main task was to collect information on key macroeconomic variables, as well as granular information on project costs and revenues and conduct investment appraisal. Esi was scheduled to make a presentation to the IC on the 15th of October 2019 following which the Committee will debate and make a decision. The project had an estimated cost of GH¢52m with a total number of 3,424 student beds and ancillary facilities. Undertaking the project required moving funds from investments in money market securities with one of the banks in Ghana. The investments in the money market securities were currently yielding about 16% a year. The determination of the cost of capital was critical and Esi and Nana eventually settled on a long-term weighted average cost of capital of 14%. This was after considering the trend of inflation, monetary policy rates, treasury rates, stock market returns and a report on returns on commercial real estate properties in Ghana. An exit capitalisation rate of 20% was also estimated for the purposes of determining the value of the property at the end of the investment horizon. Esi also obtained estimates of cost and revenue for the project and proceeded to carry out a feasibility analysis on the project. This consisted of an NPV analysis and sensitivity analysis on various factors to determine the drivers of the project value. The IC had to take several factors (both quantitative and qualitative) into consideration before making a decision. Esi believed that these factors included the diversification of the fund’s assets, the return on investment, potential oversupply of hostel accommodation, the social responsibility of providing student accommodation and the impact of any prolonged shutdown of the university.
Complexity academic level
Masters/advanced undergraduate.
Supplementary materials
Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.
Subject code
CSS 1: Accounting and Finance.
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Mohamed Nurullah and Lingesiya Kengatharan
– The purpose of this paper is to investigate prevailing capital budgeting practices in Sri Lankan listed companies.
Abstract
Purpose
The purpose of this paper is to investigate prevailing capital budgeting practices in Sri Lankan listed companies.
Design/methodology/approach
A comprehensive primary survey was conducted of 32 out of 46 chief financial officers (CFOs) of manufacturing and trading companies listed on the Colombo Stock Exchange in Sri Lanka. Garnered data were then analyzed using appropriate statistical techniques.
Findings
The results revealed that net present value (NPV) was the most preferred capital budgeting method, followed closely by payback (PB) and internal rate of return (IRR). Similarly, sensitivity analysis was regarded as the dominant capital budgeting tool for incorporating risk and the widely used method for calculating cost of capital was the weighted average cost of capital. Moreover, results revealed that size of the capital budget affects the use of the capital budgeting methods (NPV, IRR and PB) and incorporating risk tool (sensitivity analysis and simulation). Further, results revealed that CFOs had higher educational qualification were preferred to use sophisticated capital budgeting practices dominantly NPV, IRR and incorporating risk tool of sensitivity analysis although they were found to be reluctant in use of accounting rate of return. In a similar vein CFOs with higher experience were preferred using IRR and sensitivity analysis.
Originality/value
This study contributed to academics, practitioners, policy makers and stakeholders of the company. Moreover, this research has proffered a more reliable and comprehensive analysis of capital budgeting practices in Sri Lankan listed manufacturing and trading firms. Since Sri Lanka is an unexplored country on capital budgeting practices, this research was originally contributed to the extant literature per se.
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Ahmed Bakri, Suzanne G.M. Fifield and David M. Power
This paper aims to examine how capital investment projects are appraised in Lebanon; whether the risk is incorporated into this process by Lebanese firms and the impact of…
Abstract
Purpose
This paper aims to examine how capital investment projects are appraised in Lebanon; whether the risk is incorporated into this process by Lebanese firms and the impact of political risk on the capital budgeting process.
Design/methodology/approach
This paper uses a questionnaire survey to investigate the capital budgeting practices of companies located in Lebanon, which is a country characterised by a high level of political risk.
Findings
Lebanese companies tend to use more than one method of investment appraisal and, increasingly, they are using sophisticated discounted cashflow techniques alongside the payback period. The most widely used methods to evaluate risk include scenario and sensitivity analysis. Finally, political risk plays an important role in the capital budgeting processes of Lebanese companies.
Originality/value
The paper reports on whether the methods of capital investment appraisal used throughout advanced Western economies are used in the context of an emerging economy. In addition, Lebanon is an ideal research site to study capital budgeting as the conflicts in the country of the past 50 years have required sizeable new expenditure on capital projects; the country is characterised by high levels of political risk which may lead corporate managers to use different approaches to investment appraisal and it provides an opportunity to study capital budgeting decisions by private, unlisted firms.
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Reza Rajabali Beglou and Somaye Sadat Akhshik
The purpose of this paper is to define the need to a center for improving and extending university and research libraries in Iran, and identifying capabilities and position of…
Abstract
Purpose
The purpose of this paper is to define the need to a center for improving and extending university and research libraries in Iran, and identifying capabilities and position of Iranian Research Institute for Science and Technology (Irandoc) for accepting possible roles.
Design/methodology/approach
This research was documentary with scoping review in which the scope of research defined with internal and external organizational documents, related research studies in National Information System (NATIS) and international successful organizations in this field.
Findings
Findings show that Irandoc can play roles in developing a standard, establishing experts and professional network, developing information and knowledge sharing process, facilitating access to the scholarly contents, leadership and change management, developing infrastructures for research data management, gathering information and statistics of these libraries and developing interlibrary collaborations in these libraries.
Originality/value
This research is one of the seldom research studies related to clarification of an organization' role and position in NATIS in universities and improving and also extending activities of university and research libraries in Iran.