The misapplication of capital investment appraisal techniques

Abstract

Surveys of capital budgeting practices in the UK and USA reveal a trend towards the increased use of more sophisticated investment appraisals requiring the application of discounted cash flow (DCF) techniques. Several writers, however, have claimed that companies are underinvesting because they misapply or misinterpret DCF techniques. Such claims have been made on the basis of observations in only a few companies, or anecdotal evidence, without any supporting statistical evidence. Reports on a recent survey conducted by the authors which suggests that many UK firms are guilty of misapplying DCF techniques. Also provides evidence relating to some issues that have not been thoroughly examined in previous studies, namely the impact of company size and the relative importance that firms attach to different investment appraisal techniques.

Citation

Drury, C. and Tayles, M. (1997), "The misapplication of capital investment appraisal techniques", Management Decision, Vol. 35 No. 2, pp. 86-93. https://doi.org/10.1108/00251749710160223