A Critical Analysis of Capital Budgeting Techniques in Investment Decision-Making: A Case Study of BUA Group in Kano State
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Background of the Study
Capital budgeting is an essential aspect of investment decision-making within firms, particularly when evaluating long-term projects. It involves the process of planning and managing investments in fixed assets, which requires systematic evaluation methods to maximize the value of a business. In recent years, the need for precise capital budgeting has intensified as companies face increased competition, economic uncertainty, and technological changes (Kassim & Rahman, 2023). Therefore, the ability to effectively utilize capital budgeting techniques is crucial for making informed decisions that align with the organization's strategic objectives.
The Nigerian manufacturing industry is highly competitive, and BUA Group, one of the largest conglomerates in the country, is a prime example of a firm that depends heavily on capital budgeting techniques to assess investment opportunities. The company has a diversified portfolio spanning cement production, sugar refining, and other industrial investments (Ademola et al., 2024). As a leader in its sector, BUA Group employs various capital budgeting techniques, such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PP), to evaluate and prioritize investments. These techniques provide the firm with frameworks for assessing the profitability and feasibility of large-scale projects, which is crucial in a developing economy like Nigeria.
Despite the wide application of these methods, their effectiveness in enhancing decision-making processes and ensuring optimal resource allocation remains a subject of debate (Goribolu & Anozie, 2025). Previous studies on capital budgeting in Nigeria have shown mixed results regarding the practical application and success rates of these techniques in the context of local industries (Nwankwo & Nwachukwu, 2023). Factors such as inflation, foreign exchange fluctuations, political instability, and inconsistent policy enforcement significantly affect the accuracy of these techniques in decision-making (Abubakar et al., 2024). Understanding how BUA Group applies these methods within the local context, particularly in Kano State, could shed light on the efficacy of capital budgeting in Nigeria's industrial landscape.
The study, therefore, aims to critically analyze the capital budgeting techniques employed by BUA Group in making investment decisions. By focusing on a real-world case study, the research will contribute to a deeper understanding of the alignment between capital budgeting theory and practice in Nigeria’s manufacturing sector.
Statement of the Problem
Capital budgeting techniques are essential for determining the viability of large-scale investments and ensuring the effective allocation of financial resources. However, there is a concern that these techniques, particularly in the context of Nigerian companies, may not be yielding optimal results due to the challenges posed by local economic conditions (Oyewole & Alabi, 2024). In particular, firms like BUA Group, which operate in Kano State, face several barriers that may compromise the accuracy and effectiveness of these methods. These challenges include political instability, fluctuating exchange rates, and inconsistent fiscal policies that can distort financial projections and impact the outcomes of investment decisions (Jiboye & Olaniyan, 2023). Furthermore, despite the widespread use of methods such as NPV, IRR, and PP, many firms report difficulties in aligning their capital budgeting strategies with actual business performance, particularly when there is a lack of reliable data or unforeseen external shocks (Olanrewaju, 2025).
The limited academic discourse around the specific application of these techniques in Nigerian industrial settings has created a gap in knowledge regarding how companies like BUA Group apply them in practice. As a result, there is a pressing need for empirical analysis to assess the effectiveness of these capital budgeting techniques in the context of investment decision-making and business performance. The research problem is, therefore, the challenge of evaluating how well BUA Group uses capital budgeting methods to make investment decisions and the extent to which these methods lead to successful outcomes.
Objectives of the Study
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To critically examine the capital budgeting techniques employed by BUA Group in investment decision-making.
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To assess the impact of external economic factors on the effectiveness of capital budgeting techniques in BUA Group.
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To recommend strategies for improving the application of capital budgeting techniques in Nigerian manufacturing firms.
Research Questions
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What capital budgeting techniques does BUA Group employ in its investment decision-making processes?
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How do external economic factors influence the effectiveness of capital budgeting techniques in BUA Group?
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What strategies can BUA Group adopt to enhance the effectiveness of capital budgeting techniques in future investment decisions?
Research Hypotheses
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BUA Group’s use of capital budgeting techniques significantly influences the profitability of its investment projects.
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External economic factors, such as exchange rates and political instability, negatively affect the accuracy of capital budgeting techniques in BUA Group.
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BUA Group’s capital budgeting techniques lead to suboptimal investment decisions due to data inadequacies and inconsistent fiscal policies.
Scope and Limitations of the Study
The study will focus on BUA Group, particularly its operations in Kano State. This case study will allow an in-depth analysis of the specific techniques employed by the company and their impact on investment decisions. The study is limited by the availability of data, as BUA Group may not disclose detailed financial information or insights into their decision-making process. Furthermore, the research will not include other firms in Nigeria, which may limit the generalizability of the findings to other sectors or regions. External factors such as political instability and economic fluctuations in Nigeria may also pose limitations in evaluating the long-term effectiveness of capital budgeting methods.
Definitions of Terms
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Capital Budgeting: The process of evaluating and selecting long-term investment projects based on their expected profitability and risk.
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Net Present Value (NPV): A capital budgeting technique that calculates the difference between the present value of cash inflows and outflows over the life of an investment project.
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Internal Rate of Return (IRR): The discount rate at which the net present value of an investment becomes zero, indicating the project's expected rate of return.
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Payback Period (PP): The time it takes for an investment to recover its initial cost through its cash inflows.
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