The Use of Capital Budgeting Techniques in Evaluating Investment Projects: An Applied Study on the Palestinian Corporations Working in Gaza Strip

Abstract

The objective of this study is to explore the use of capital budgeting

techniques in evaluating investment projects and the obstacles (if any) that

hinder the use of capital budgeting techniques in the Palestinian public

corporations in Gaza strip.

For this purpose, the study used the descriptive analytical approach

and the population of the study included all the eighteen Palestinian public

corporations registered in the ministry of economy-Gaza. Fifty questionnaires

were sent to financing affairs and investing departments employees. The

response rate was 80% and the study used the SPSS program to analyze the

results.

The results indicated that the Palestinian public corporations in Gaza

strip use the capital budgeting techniques when selecting investment projects

and that the use of these techniques was in the range from 61 to 80%, and

that the profitability index is the most used technique while the net present

value was found to be the least used technique. The results also indicated

that the Palestinian public corporations in Gaza strip do not use the weighted

average cost of capital (whether adjusted or unadjusted) for determining the

discount rate needed in the use of some techniques. The study also found

that the Palestinian corporations in Gaza strip consider many factors before

adopting any capital budgeting technique as a basis for comparing different

investment projects and that the availability of data and information for the

company, followed by the preference of the CBT that concentrates on the

cash flows and the management’s conviction of the technique was found to

be the most important factor that is considered before adopting a technique

of capital budgeting as a basis for evaluating proposed investment projects.

On the other hand, the results indicated that there are many obstacles

that hinder the use of capital budgeting techniques by the Palestinian

corporations in Gaza strip and that the unavailability of the necessary data

and information, followed by uncertainty surrounding the use of the capital

budgeting techniques, is the most important obstacle hindering the use of

capital budgeting techniques whereas the existence of external institutions

for managing investments was found to be the least effective factor in

undermining the use of capital budgeting techniques .

The study suggested a set of recommendations, foremost of which is to

increase the use of the net present value when choosing among alternative

investment projects as it measures the addition to the stockholders’ wealth.