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Article
Publication date: 6 February 2009

Ersem Karadag, Cihan Cobanoglu and Clay Dickinson

The purpose of this study is to examine and to compare the most utilized information technology (IT) investment decision methods between hotels with centrally managed IT…

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1946

Abstract

Purpose

The purpose of this study is to examine and to compare the most utilized information technology (IT) investment decision methods between hotels with centrally managed IT, and hotels with locally managed IT.

Design/methodology/approach

The empirical data were collected via a structured questionnaire from hotel managers in the USA.

Findings

The key findings of the research are that evaluation activities for hospitality IT investments have not been performed widely and consistently. Although sophisticated evaluation methods have been developed over the years, they do not appear to have provided a satisfactory answer to improve IT decision‐making practice. In this study, significant differences were found in how IT investments are evaluated in hotels with centrally managed IT as compared to hotels with locally managed IT. The hotels with centrally managed IT tend to use more financial and non‐financial evaluation methods since all investments are expected to show a positive return on investment.

Practical implications

The research findings highlight the importance of the use of IT investment evaluation techniques in hotels and the major differences between hotels with centrally and locally managed IT.

Originality/value

The literature on IT investment evaluation methods in the lodging industry is limited. Being one of the first studies in this area, these research findings are particularly valuable for practitioners and researchers.

Details

International Journal of Contemporary Hospitality Management, vol. 21 no. 1
Type: Research Article
ISSN: 0959-6119

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Article
Publication date: 1 October 2019

Thuy Duong Oesterreich and Frank Teuteberg

Despite the advantages that the VoFI approach offers compared with traditional capital budgeting methods, its application for the appraisal of information technology (IT…

Abstract

Purpose

Despite the advantages that the VoFI approach offers compared with traditional capital budgeting methods, its application for the appraisal of information technology (IT) and information systems (IS) investments in both research and practice is not widespread to date. Given the static nature of the generic VoFI table, the method reaches its limits in its financial plan form because it is unable to investigate the dynamic behaviour of complex investment calculations. To date, there has been no attempt to address these shortcomings to advance the use of VoFI as a useful and valid capital budgeting method in finance and accounting. Therefore, the purpose of this study is to address this research gap and aim at developing a ‘dynamic’ VoFI model that integrates all input variables and target measures of a VoFI table and visualises the causal relationships among these variables.

Design/methodology/approach

The ‘dynamic’ VoFI model is developed through System Dynamics (SD) modelling to enhance the strength of the VoFI concept as an instrument for visualising the financial implications of investments in IT and IS at the corporate level. Case study research is used as a research method to study the behaviour of the developed model. The validity of the model is demonstrated by conducting simulation runs in Vensim software. In addition, probabilistic sensitivity analyses are performed to account for the impact of uncertainty on the main model variables.

Findings

The results demonstrate the usefulness of SD modelling for extending the generic VoFI concept by integrating risk analyses and providing a new strategy of data analysis and data presentation different from the typical financial plan form. Furthermore, the dynamic VoFI model enables the visualisation of interdependencies among the various variables incorporated in the VoFI financial plan, which significantly enhances the conceptual understanding of the investment and its financial consequences.

Originality/value

The integration of the VoFI concept into an SD model helps researchers and practitioners to enhance their conceptual understanding of this method. This thus increases its acceptance and popularity as a practical capital budgeting method, especially for the financial assessment of IT and IS investments. The VoFI model proposed in this paper should also enable analysts and decision makers to become more conscious of the interdependencies between the assumptions made for an appraisal and the quantitative results.

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Article
Publication date: 2 November 2015

Lindon J. Robison, Peter J. Barry and Robert J. Myers

It is well known that internal rate of return (IRR) and net present value (NPV) rankings of mutually exclusive investments are sometimes inconsistent. This inconsistency…

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2103

Abstract

Purpose

It is well known that internal rate of return (IRR) and net present value (NPV) rankings of mutually exclusive investments are sometimes inconsistent. This inconsistency, when it occurs, requires decision makers to choose between the two ranking methods. The purpose of this paper is to deduce sufficient conditions for consistent IRR and NPV investment rankings of mutually exclusive investments.

Design/methodology/approach

Deductive reasoning is used to obtain the sufficient conditions required for consistent rankings of mutually exclusive investments.

Findings

There are different sufficient conditions (methods) that can be used to resolve inconsistent IRR and NPV rankings. However, the different methods do not necessarily produce the same consistent rankings. In particular, different size adjustment methods and reinvestment rate assumptions can produce different IRR and NPV consistent rankings. This paper suggests the appropriate criteria for selecting a particular method for ranking mutually exclusive investments.

Research limitations/implications

Like all deduced models, the results apply only to the set of assumptions and preconditions adopted in the model. Furthermore, the application is to ranking mutually exclusive investments.

Practical implications

There is probably no other issue in the capital budgeting literature that has generated more attention and debate than the consistency (or lack thereof) between IRR and NPV rankings. This paper summarizes conditions that can be followed to resolve the conflict which should have near universal interest to those working in the capital budging area. This paper offers alternative methods for obtaining consistent IRR and NPV rankings which can be used to improve investment ranking decisions. The particular method used should depend on the decision environment. Guides for choosing the appropriate ranking method are described in the paper.

Social implications

Significant decisions, projects, and investments are evaluated using either IRR or NPV methods. This paper shows that existing evaluation methods can lead to sub-optimal investment choices and provides an improved framework that facilitates better investment choices. Lacking an understanding of the sufficient conditions for IRR and NPV consistency – means that resource allocations have been made to investments and projects that are not optimal.

Originality/value

To the best of the authors’ knowledge, the results are this paper have not been published nor are they available elsewhere. That said, this paper builds on important earlier work which is carefully cited and credited.

Details

Agricultural Finance Review, vol. 75 no. 4
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 1 April 2005

M.J. du Toit and A. Pienaar

This article reports on the results of a survey on how companies listed on the main board of the JSE Securities Exchange SA make a capital investment decision in practice…

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511

Abstract

This article reports on the results of a survey on how companies listed on the main board of the JSE Securities Exchange SA make a capital investment decision in practice. The respondents to the survey questionnaires provided answers regarding the methods that their companies use to evaluate capital investments, as well as to evaluate mutually exclusive projects. The results suggest that South African companies prefer to use the internal rate of return (IRR) and net present value (NPV) to evaluate capital investments. In addition, there appears to be a correlation between the methods that companies use and the size of their annual capital budget. Finally, a hypothetical problem was presented to the respondents, who were asked to choose between two mutually exclusive projects. Interestingly, the majority of the respondents chose the project which added the least value.

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Article
Publication date: 3 December 2019

Zahra Moeini Najafabadi, Mehdi Bijari and Mehdi Khashei

This study aims to make investment decisions in stock markets using forecasting-Markowitz based decision-making approaches.

Abstract

Purpose

This study aims to make investment decisions in stock markets using forecasting-Markowitz based decision-making approaches.

Design/methodology/approach

The authors’ approach offers the use of time series prediction methods including autoregressive, autoregressive moving average and artificial neural network, rather than calculating the expected rate of return based on distribution.

Findings

The results show that using time series prediction methods has a significant effect on improving investment decisions and the performance of the investments.

Originality/value

In this study, in contrast to previous studies, the alteration in the Markowitz model started with the investment expected rate of return. For this purpose, instead of considering the distribution of returns and determining the expected returns, time series prediction methods were used to calculate the future return of each asset. Then, the results of different time series methods replaced the expected returns in the Markowitz model. Finally, the overall performance of the method, as well as the performance of each of the prediction methods used, was examined in relation to nine stock market indices.

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Article
Publication date: 18 June 2019

Chijoo Lee

Special purpose companies issue stocks to raise money to finance development of real estate and infrastructure. The advantage of a stock issue is that it does not entail…

Abstract

Purpose

Special purpose companies issue stocks to raise money to finance development of real estate and infrastructure. The advantage of a stock issue is that it does not entail financial cost such as interest on a loan. However, financing obtained in this way has been insufficient due to low interest by investors because of the large variability of the stocks’ earnings rates. The purpose of this paper is to propose methods to improve investment earnings rate for financing.

Design/methodology/approach

The proposed methods are Markowitz’s model and a combination of Markowitz’s model and Monte Carlo simulation. The proposed methods were verified by comparison with actual earnings rate.

Findings

The earnings rate was increased by as much as 23 percent over the actual value. Then, earnings rate compared with risk was analyzed using the Sharpe ratio which is a method to measure investment performance. The performance was also increased by as much as 23 percent over the actual value. The proposed method can help activate investment by increasing investors’ interest in the stock issue.

Originality/value

This study verified that Markowitz’s portfolio model, which is used for econometrics, could be applied for financing of construction project. It is valuable because the previous studies did not propose the method for financing.

Details

Engineering, Construction and Architectural Management, vol. 26 no. 9
Type: Research Article
ISSN: 0969-9988

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Book part
Publication date: 14 July 2006

Hanna Silvola

This paper investigates the extent to which formal capital budgeting methods are used in small high-tech firms. We define high-tech firms by their R&D intensity. In…

Abstract

This paper investigates the extent to which formal capital budgeting methods are used in small high-tech firms. We define high-tech firms by their R&D intensity. In addition, we define software industry as a special type of R&D-intensive firm. We focus on the methods that are used by the small high-tech firms in evaluating the profitability of investment projects, estimating the cost of capital and making decisions related to the capital structure. Our results based on two surveys of Finnish firms indicate that the high-tech firms use similar capital budgeting methods and estimate their cost of capital in a similar way to other small-sized firms in other industries. Moreover, high-tech firms seek external financing and co-owners.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-84950-447-8

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Article
Publication date: 1 May 1996

F.M. Wilkes, J.M. Samuels and S.M. Greenfield

Investment in manufacturing is important to sustained UK economic recovery, quality of life and national economic standing. Considers results from a survey of UK…

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4476

Abstract

Investment in manufacturing is important to sustained UK economic recovery, quality of life and national economic standing. Considers results from a survey of UK manufacturers on influences on capital investment, the appraisal methods used and the impact of recent changes, particularly in interest rates. Compares results with the Bank of England and CBI surveys and studies of appraisal methodology. Outcomes include the finding that UK interest rates are not seen by most manufacturers as an important influence on their investment decisions. Examines the effects of factors such as inflation, taxation and the UK and EU economic outlooks. Responses confirm near universal usage of the payback method in financial appraisals and widespread use of multiple criteria. Looks at UK investment in advanced manufacturing technology (AMT) and what allowances are made for intangible benefits. Considers a number of aspects of short‐ termism and concludes that the Cadbury recommendations are unlikely to have a major impact.

Details

Management Decision, vol. 34 no. 4
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 29 April 2020

Giuseppe Munda and Agata Matarazzo

The purpose of this paper is to deal with one of the technical difficulties of private and social cost–benefit analysis, i.e. the choice of the proper cost–benefit…

Abstract

Purpose

The purpose of this paper is to deal with one of the technical difficulties of private and social cost–benefit analysis, i.e. the choice of the proper cost–benefit aggregation rule (or method) to use, when a private capital investment decision has to be taken or a public project appraisal has to be carried out.

Design/methodology/approach

Although the considerable amount of existing literature, the problem of the choice of the right mathematical aggregation rule is still an open one. The majority of authors claim that net present value is a superior method and thus it is the one to be always used. Other authors try to show that various aggregation methods, under specific conditions, arrive at the same recommendation. An exceptional case is the field of education economics where the internal rate of return is widely used.

Findings

This paper offers a survey of this controversial topic which focuses on some clear cut formal properties of the various aggregation methods and considers the empirical characteristics of the different fields of application. Its main conclusion is that no “correct” aggregation rule, always applicable in all decision frameworks, can exist.

Originality/value

Its main objective is to supply clear guidelines to orient practitioners and help the teaching on this topic. Its main conclusion is that no “correct” aggregation rule, always applicable in all decision frameworks, can exist. On the contrary, even if one restricts her/himself to a particular class of investments, often no clear-cut selection can be made.

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Article
Publication date: 31 August 2012

Douglas Flint, Elin Maher and Martin Wielemaker

The purpose of this paper is to present a new method to account for investments in human capital, which the authors have named investment capitalization. This method uses…

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1173

Abstract

Purpose

The purpose of this paper is to present a new method to account for investments in human capital, which the authors have named investment capitalization. This method uses investments in training and hiring of employees as a surrogate for their intellectual capital, capitalizing and amortizing the investment over its useful life. Investment capitalization is compared to the more conventional Generally Accepted Accounting Principles (GAAP) and the newer intellectual capital accounting methods.

Design/methodology/approach

Scenarios comparing the effects of downsizing or organizational performance are used to demonstrate the effects of decisions based on intellectual capitalization and GAAP.

Findings

Results of the scenario analysis show that the investement capitalization method causes less destruction of intellectual capital during downsizing decisions than does GAAP.

Originality/value

This paper presents a new method of accounting for intellectual capital and demonstates the benefits of this method when making downsizing decsions.

Details

Journal of Human Resource Costing & Accounting, vol. 16 no. 3
Type: Research Article
ISSN: 1401-338X

Keywords

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