RELEVANCE OF CAPITAL BUDGETING TO THE PUBLIC SECTOR ORGANIZATION (A Case Study of Ikorodu Local Government)

ABSTRACT

Relevance Capital Budgeting to Public Sector in an Organization is the process of analyzing potential investment for the firm. Capital budgeting decisions are probably the most important ones financial managers must make. Capital budgeting decisions usually involves substantial expenditures on new assets. These decisions are particularly important because the firm loses much of its flexibility by locking into project and because budgeting decisions define the firm’s strategic direction.

 

Capital Budgeting in Nigeria local government is very vital and must be approach with all sense of diligence. The rate of economic development in the Nigeria local government has been relatively slow due to continuing whiting down of their powers by the state government and the state government had continued to encroach upon what would normally have been exclusive preserves of local government and constantly there has been a divorce between the people of governments at their most basic levels.  The project is intended to create awareness in Capital Budgeting in Nigeria Local Government.  Also the general reader will find it educating and informative.  The need for this study arises from the variation in Capital Budgeting in Nigeria Local Government that has been noticed and this research work hoped to improve the standard and in order to achieve this, project has gone into so many past works of authors and related literatures.

 

This study is divided into five chapters covering the wide scope of compensation management.  Chapter one deals with the general focus of the study.  Chapter two tries to review various concepts and theoretical strands that are relevant to this study.  In chapter three, attempt was made to look into the methodology of the study.  Chapter four endeavour to present, analyze and summarize the data collected in the course of the study.  The conclusion of the study is in chapter five where general Summary, conclusion and recommendations were made.  These were considered relevant to improve the Relevance Capital Budgeting to Public Sector in an Organization.

 

In the analysis of the research work it was concluded that Capital Budgeting has a great impact to public sector organization.

 

TABLE OF CONTENTS

Title page                                                                         i

Certification                                                                     ii

Dedication                                                                       iii

Acknowledgement                                                            iv

Abstract                                                                           v

Table of Contents                                                             vi-vii

 

CHAPTER ONE: 

1.0   Introduction                                                             1

1.1       Statement of the Problem                                         2

1.2       Purpose of the Study                                                3

1.3       Significance of the Study                                          3

1.4       Scope and Limitation of the Study                            4

1.5       Research Questions                                                 4

1.6       Research Hypothesis                                                4

1.7       History of Ikorodu Local government                        5

References                                                               7     

 

CHAPTER TWO:  Literature Review

2.0   Introduction                                                             8     

2.1       Why and What is Capital Budgeting                         10

2.2       Conceptual of Capital Budgeting                              11

2.3       Kinds of Capital Budgeting Proposals                       11

2.4       Capital Budgeting Decision                                       13

2.5.     Capital Budgeting Process                                        15

2.6.     The criteria for Investment Decision                         16

2.7.     Impact of Government Decision                                22

2.8.     The Role of L. G. Throughout the Process                 22

2.9.     The Theoretical Issues of Capital Budgeting              23

2.10. The Capital Budgeting Process in Ikorodu L.G          25

2.11. Analysis of the Study                                                26

References                                                                31                   

CHAPTER THREE: Research Method

3.0   Introduction                                                             32

3.1   Research Design                                                      33

3.2   Sources of Data                                                        33

3.3   The Population of the Study                                     34   

3.4   Sample Size                                                             34

3.5   Questionnaire Design                                               34

3.6   Administering of Questionnaire                                36

3.7   Analysis Techniques                                                 36

3.8   Methodology Limitation                                            37

        References                                                               38

 

CHAPTER FOUR:  Presentation and Analysis of Data

4.0   Introduction                                                             39

4.1       Analysis of Personal Data                                         39

4.2       The relevance of Capital Budgeting                           44

4.3       Testing and Analysis of Hypothesis                          57

4.4       Test of Hypothesis                                                    51-56

 

CHAPTER FIVE: Summary, Conclusion and Recommendations

5.1       Summary of the Major Finding                                 63

5.2       Conclusion                                                              63

5.3       Recommendation                                                     65

Bibliography                                                                    66

Questionnaire                                                                  70

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

The term ‘Capital Budgeting’ occupies or plays a strategic or pivotal role in every organization, be it public owned organizations or privately owned organization. To this extent, the importance or role of capital budgeting cannot be undermined because of its importance in financial decision.

 

Capital Budgeting has been defined in different ways but it means of the same or relatively the same by different authors, scholars and schools of thought.

 

According to the Institute of Cost and Management Accounting, Capital Budgeting as a financial and quantitative statement prepared on capital expenditure prior to a definite period of time of the policy to be pursued for the purpose of attaining a given objective.

 

In the word of G.C Philipalys ‘Capital Budgeting’ is concerned with allocation of firm’s care financial resources among the available market opportunities.

 

In his own view, Lynch explained that Capital Budget-ing consists in planning, development of available capital for the purchase of maximizing the long term profitability in the concern.

 

In general view, Capital Budgeting involves all the processes in the investment of resources in the long term projects in anticipation of making profit or providing essential services to the public acquisition of land, building, machinery and other capital projects.

 

More often than none, the resources of a nation or society are not allocated to its component by the market forces or mechanisms (prices) but by the public decision making means. The principles that guide the allocation of the public resources ensure the resources are distributed in such a way that the objectives of the public are accomplished through efficient and effective budgeting system.

 

1.2   STATEMENT OF THE PROBLEM

This research work will focus primarily on investigating and point-out the problems facing public owned organizations for its inability to put in place efficient allocation of resources, equitable distribution of income by the use of tax and stabilization of economy by the use of capital budgeting and how it affects their service delivery to the people, high lost an inadequate capital, poor human resources, unpredictable social and economic factors bad policy formulation, sharp practices.

 

1.3   SIGNIFICANCE OF THE STUDY

This research study will endeavor to show how Public Sector can go about putting its Capital Budgeting in place to bring desired results to the people. Also, to contribute to the body of knowledge which will be beneficial to the society at large.

 

1.4   RESEARCH HYPOTHESIS

(1)    H0: Capital Budgeting can not improve allocation of resources through spending and policy implementation.

H1: Capital Budgeting can improve allocation of resources through spending and policy implementation.

 

(2)    H0: Capital Budgeting is not efficient in distribution of income through tax and benefits.

H1: Capital Budgeting is efficient in distribution of income through tax and benefits.

(3)    H0: Capital Budgeting can not stabilize economy by the use of fiscal and monetary policy.

        H1: Capital Budgeting stabilize economy by the use of fiscal and monetary policy.

 

1.5   RESEARCH QUESTIONS

(1)    Does Capital Budgeting improve allocation of resources through spending and policy implantation?

(2)    Does Capital Budgeting at efficient in distribution of income through the tax and benefits.

(3)    Does Capital Budgeting stabilize economy by the use of fiscal and monetary policies.

 

1.6      METHODOLOGY OF DATA COLLECTION

Questionnaires are hand-delivered to the selected local government.  Offices for the purpose of the study.  This is to ensure that they got to the respondents.  They were been given enough time, and reminder calls were been made after a while to be able to gather up every questionnaire with this making up to two weeks duration. 

 

1.7 METHOD OF DATA ANALYSIS

The data collected were analyzed using the descriptive and inferential statistics. The entire copies of questionnaire will however be collected and analyzed based on simple percentage.  The hypotheses formulated above will also be tested with chi-square statistical technique, which is an estimation of hypothesis testing, normally used when comprising the observed distribution of data with the expected distribution. 

The chi-square distribution is refereed to as “goodness of fit text”. Here is the formula below:

X2 = ∑ (fo-fe)2

               E

Where

Fo    =  Observed Frequency

Fe    =  Expected frequency

To calculate the expected value, the formula is also given as:

∑rc    =  Row Total x Column total

                        Grand Total

 

 

1.8   SCOPE AND LIMITATION OF THE STUDY

This research study will try to point out what is obtainable in the Public Sector in terms of Capital Budgeting practices. This research work will limit its scope to capital budgeting in Ikorodu Local Government.

 

1.9   HISTORY OF IKORODU LOCAL GOVERNMENT

Ikorodu local government is one of the most stable of all local government in terms of its political boundaries. It has six autonomous communities namely:- Ibeshe, Igbogbo, Ijede, Ikorodu, Imota and Ipakodo. Ikorodu Local Government is bounded in the east by Epe local government, south by lagoon in the north by Remo Local Government of Lagos State, and in west by Shomolu Local Government. The local government is located at the upland area of the topography has such drainage within this area is very effective on the slopes and through several rivers which flow into the stretch of the Ogun-Majidun river valleys is swampy.

 

Infrastructural Facilities

There are many of this in Ikorodu to start with water transportation is effectively utilized as more than seventeen communities are accessible by water in the L.G.A. various water craft ply between Ikorodu and Lagos (Ebute Ero) and even beyond Epe and Mushin area of Ondo State across the Lagos lagoon. Ikorodu township has a lighter terminal.

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